Mariano Rajoy is running out of excuses. The Spanish prime minister had asked the euro zone to prove that it stood by him, as he tried to take the country out of its property and banking mess. The European Central Bank has answered Mr. Rajoy’s call with a plan to buy bonds – and time – for countries that agree to reform. But the Spanish leader keeps dithering. He hopes that after the country’s bank bailout, he can avoid requesting a sovereign one. His fears are political: he doesn’t want the International Monetary Fund involved in the rescue.
Mr. Rajoy’s pride is understandable – and misplaced. The greatest danger for Spain right now is the EU’s cult of fiscal discipline. The fetish for deficit targets is leading to spending cuts, which make this year’s likely recession worse, eat into long-term productive capacities, cultivate voters’ disdain, and make serious reforms less likely.
And the IMF could help. Its interventions may well come with a stigma, and the institution still suffers from its reputation for neo-liberal fundamentalism. But Mr. Rajoy and his Italian counterpart Mario Monti, who also seems to fear the IMF stain, fail to see that since the beginning of the euro crisis, the IMF has acted as a spokesman for wisdom – insisting that realistic goals are better than the numbers implied by abstract, brutal force.
The EU authorities will eventually have to admit that their rigid targets cannot be met. Better now than later. Better not wait for France to admit that it cannot reduce its deficit to 3 per cent of GDP next year, thus giving the impression that rules are only broken when the largest countries request it. The IMF can help Europeans realize they already have a “fiscal compact”, which focuses on structural deficits – and at least allows for fiscal flexibility in down times.
Mario Draghi keeps insisting on discipline but he must know that mindless austerity is not complementary but contradictory to helpful structural reforms. Meanwhile, Mr. Rajoy’s short-sightedness can only hurt his country and lengthen the euro’s travails.