Spain 'has done its homework' on the economy: Merkel

3rd February 2011, Comments 0 comments

German Chancellor Angela Merkel on Thursday hailed reforms undertaken by eurozone member Spain to revive its battered economy and fend off the need for an Irish-style bailout.

"Spain has really done its homework and for that reason I think Spain is on a very good path," she said when asked during a joint news conference with Spanish Prime Minister Jose Luis Rodriguez Zapatero if she could "absolutely" rule out the need of a rescue package for Spain.

"The path that Spain is on is very positive, it's very good that they have carried out their reforms with the backing of unions and businesses.

"For this reason, I think Spain is really on a very good path and I think there's no room for any sort of speculation."

Her visit comes a day after Zapatero's Socialist government signed a "grand social pact" with unions and business groups on reforms to revive the economy that will gradually increase the retirement age from 65 to 67 just as Germany has done.

It also establishes the "basic principles" of a reform to Spain's collective bargaining system, which ensures joint wage rises across sectors and industries.

The deal is critical to Madrid's campaign to convince the markets that it can push through difficult labour reforms so as to speed up the economy, cut spending, finance the debt and avoid the need for a bailout such as those granted fellow eurozone members Ireland and Greece last year.

The government has also changed the labour law to make it easier to fire workers, a move it says will create jobs in a country with an unemployment rate of just over 20 percent, the highest level in the industrialised world.

Last week Madrid announced that all lenders must raise their levels of rock-solid core capital or face state intervention.

The measure aims to address market concerns that Spain's regional savings banks may not be able to cope with losses from their exposure to a real estate market that has gone bust and will need government help as happened in Ireland.

"The reforms carried out by Spain deserve all our respect," Merkel said.

Her comments came on the eve of an EU summit in Brussels where more effective ways to prop up fiscally frail countries and calm financial market unease over the euro single currency will be a key focus.

The government in Germany, Europe's strongest economy and the paymaster of the EU, is under pressure from voters reluctant to see their money spent to help out wayward eurozone economies.

It wants other member states to agree to a "competitiveness pact" before it signs additional guarantees for the European Financial Stability Facility, the rescue fund for eurozone members.

Such a pact would require eurozone countries to coordinate their economic and social policies far more closely in the future.

Berlin argues this would help fix what former European Commission president Jacques Delors has called a basic "design flaw" in the monetary union -- that while there is a common currency there is no common economic policy.

"The euro is a common currency but it is also a common economic project. If the euro fails, Europe fails," said Merkel.

Zapatero, whose popularity in the polls has slumped over the past year as he introduced painful reforms considered to be a policy U-turn by many of his supporters, backed Germany's call for a "competitiveness pact".

"The euro is strong, we are going to strengthen the single currency further," he said.

© 2011 AFP

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