OLIVIER BLANCHARD, FMI: Spain, Portugal and Greece must cut public sector wages

• The Eurozone will not break apart

Spain, Portugal and Greece are facing important difficulties due to the state of their public finances, which is why they need to make some sacrifices, such as cutting wages in the public sectors, an official of the IMF said.

Olivier Blanchard, chief-economist with the IMF, said, as quoted by French daily Les Echos: "Du to the crisis, Portugal, Spain and Greece are having serious troubles, which involve very painful adjustments".

According to Blanchard, since they are part of the Eurozone, these countries will not be able to resort to adjusting the exchange rates, which illustrates that a monetary union "has a cost when it comes to asymmetric shocks". Blanchard stressed the fact that thanks to the unified currency, Europe handled the crisis better than if the national currencies had remained in place. Furthermore, the chief-economist of the IMF insisted that the Eurozone would not fall apart.

On a different note, Blanchard, said that central banks should keep interest rates very low:

"This is essential. As long as we don"t see a recovery in private demand, it is absolutely vital to keep the current interest rate levels, perhaps even beyond 2010".

Olivier Blanchard said that keeping low interest rates, does not prevent the central banks from removing any other emergency measures that have been enacted.

• Deficit cutting measures all over Europe

The measures for cutting public deficits are focused on four main goals: cutting overall public spending, revising the status of the public sector workers and inherently cutting expenses in the sector, increasing the retirement age and raising taxes, Swiss daily Le Temps says. According to it, Spain is the most committed to cutting public spending. Its budget draft plans to shave EUR 40 billion off the expenses of the public administration by 2013 and EUR 10 billion off the spending of local communities, by 2013, in order to lower its deficit from 11.3% of the GDP, to 3% in 2012.

Ireland will reduce several social programs to lower its deficit, which currently stands at 11.6% of the GDP, to 2.9% in 2014, as well as trim several general purpose and investment programs.

Even though it hasn"t yet provided details on its intentions, France expects to cut its public spending with 1% starting in 2011. The UK and Portugal are going along the same lines, even though they haven"t announced any numbers. In order to cut their debts, the two countries will commit to new privatizations, according to Le Temps.

Several governments want to cut the number of public sector workers, with Spain being the most resolute on this matter. Athens will freeze any salaries which exceed 2,000 Euros a month. Ireland will go even further: it will cut the wages of all public sector employees, starting at 5% for those making less than EUR 30,000 a year, to 15% for those making more than EUR 200,000.