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Be flexible on euro deficit rules, says IMF

Distressed eurozone countries need more time to hit their deficit reduction targets, the International Monetary Fund warned yesterday.

Speaking at a conference in Brussels, the IMF's deputy managing director, Nemat Shafik, said that Spain and others need a more relaxed timetable to cut their deficits to3 per cent of GDP, as mandated by European Union fiscal rules.

"In a few euro area countries... the nominal fiscal targets for 2012 agreed before the current slowdown in growth may prove too pro-cyclical and may need to be adjusted or at least expressed in structural terms," she said.

This seems to be in tune with the thinking of some European policymakers. Earlier this week the European economic affairs commissioner, Olli Rehn, said that Spain could be given an extra year (2014 rather than 2013) to bring down its deficit to 3 per cent of GDP.

Ms Shafik also said that the European Central Bank could do more to support growth. "With price pressures expected to decline, this means the European Central Bank could consider further expansionary measures to prevent aggregate inflation slipping far below the target of keeping inflation at or below 2 per cent."