MercoPress. South Atlantic News Agency

IMF chief Strauss-Khan strongly supports Spain’s reforms

Smiles after days of long faces: Rodriguez Zapatero receives Strauss-Khan

IMF Managing Director Dominique Strauss-Kahn praised Spain’s management of the current economic situation and said the budget deficit will shrink “rapidly” as the government’s overhaul of labor rules boosts economic growth.

“The decisions made by the Spanish government are very welcome and I think will be very effective,” Strauss-Kahn said at a joint press conference with Prime Minister Jose Luis Rodriguez Zapatero in Madrid after they met Friday. “The deficit in countries like Spain will decrease rapidly.”

Spain is trying to convince investors it can cut the third- largest deficit in the Euro region, while propping up the country’s savings banks and lifting the economy out of a two- year slump. The IMF view of Spain’s economy is more pessimistic than that of the government, whose economic growth forecasts for 2012 and 2013 are more than a percentage point higher than those of the Washington-based lender.

Spanish “growth will come back very rapidly,” Strauss- Kahn said. “I’m really confident in the medium-term and long- term prospects for the Spanish economy, providing the efforts that have to be made are made.”

Rodriguez Zapatero’s labor-law changes make it easier for companies to avoid adhering to wage-bargaining deals. The decree allows companies and workers to avoid applying collective-wage bargains “when the economic situation and outlook of the company could be damaged as a consequence” of applying the deals, according to the text approved by the Cabinet this week.

Investor concerns about debt levels and budget deficits in Spain, Portugal and Greece have dragged the Euro down 14% against the dollar this year.

“Now we are at a level which for many Europe industrialists, many European exporters, it certainly is a bit of a better level,” Strauss-Kahn said. “I won’t be surprised if markets evolve in a different way in the coming weeks and coming months,” he added, referring to bond and currency trading.