Spain resists pressure for bailout as IMF calls for firm action

As the head of the International Monetary Fund called on governments to co-operate to heal a fractured global economy, credit rating agency Standard and Poor's said recession was limiting Spain's policy options and any delay in seeking a rescue risked a further downgrade. Moody's said it may soon follow suit, the Guardian reports.

Prime minister Mariano Rajoy , however, struck a defiant tone when he said that tough labour reforms and the rebuilding of its tarnished banking sector meant the IMF's dire forecast for Spain's economy would not be realised.

"If we follow that strategy ... we'll see that the reality turns out to be better than the forecasts," he said.

Rajoy's position was strengthened as Spain's key 10-year bond yield remained unchanged on Thursday despite the S&P move. He is thought to want to wait at least until after regional elections on 21 October to ask for aid and even later if the European Central Bank's bond buying keeps borrowing costs down.

He is supported by the German chancellor, Angela Merkel, who does not want to explain another bailout to her voters.

Speaking at its annual meeting in Tokyo, IMF chief Christine Lagarde warned that only with greater co-operation and courage could governments hope to prevent a repeat of the financial crisis.

After banking regulators told her some parts of the financial system were as unsafe as before the collapse of Lehman Brothers in 2008, she said policymakers needed to take immediate action to resolve issues hanging over from the crisis.

"There are threats on the horizon, threats that can be addressed, should be addressed but are not necessarily addressed," she said.

Europe has come under fire for its failure to end the eurozone debt crisis. Leaders in the US and Asia have become frustrated at delays in agreeing measures to bolster Greece, Spain and Portugal.

Lagarde said: "We expect action and we expect courageous and co-operative action on the part of our members."

The IMF has expressed frustration with Europe's piecemeal response to its debt crisis and warned that a recent respite in borrowing costs for debt-laden countries such as Spain may prove short-lived unless eurozone leaders come up with a comprehensive and credible plan.

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