On Monday, the IMF called on Spain for “urgent” banking and labor reforms as Zapatero’s government struggled to rein in Spain’s public deficit amid a worsening European debt crisis.
“Spain’s economy needs far-reaching and comprehensive reforms,” said the IMF report. Challenges facing Spain according to the IMF are “severe”, with a “dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private-sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness.”
Spain is suffering the consequences of the worst recession in 60 years after the international financial crisis that prompted the meltdown of the real estate sector following a huge debt-fuelled property bubble.
The outlook: a weak and fragile recovery
Financial markets rattled on Monday as the European debt crisis took a new fall with a weekend bailout of a troubled Spanish savings bank. CajaSur, was taken over by the Bank of Spain and could cost up to 2.7 billion Euros, according to Spanish newspaper reports Monday.