Spain signs 'grand social pact' for economic overhaul

2nd February 2011, Comments 0 comments

Spain's government, unions and business leaders signed a "grand social pact" Wednesday on sweeping reforms to revive the economy and cut a sky-high jobless rate.

The deal is critical to Spain's campaign to convince the markets that it can push through difficult labour reforms so as to speed up the economy, cut spending, and finance the debt.

Lurking in the minds of investors is the fear that Spain may fall into the debt quagmire that swamped Ireland and Greece, forcing it to request a bailout from the European Union and the International Monetary Fund.

"This agreement has three objectives: growth, jobs and the sustainability of our public finances," Prime Minister Jose Luis Rodriguez Zapatero said in a speech after the signing ceremony.

"We will show that we belong to the group of great nations that knows how to stand up and walk again after going through a period of serious difficulty."

The central plank of the deal was an agreement reached Friday after months of negotiations to raise the retirement age to 67 from 65 by 2027.

The retirement deal includes exceptions, for example allowing people with dangerous or arduous jobs to retire before 67, as demanded by Spain's two biggest unions, the UGT and the CCOO.

But it has nevertheless been welcomed by markets, nervous that pension payments could spiral out of control in the decades to come as the number of retirees expand.

Unions had threatened to call a general strike if the government pushed ahead with a reform of the pension system without taking their demands into account.

In September unions staged the first general strike since Zapatero's Socialist government came to power in 2004, furious over labour law reforms making it easier to fire workers.

The government is determined to deepen those reforms, however, to cut a jobless rate that hit a 13-year record of 20.33 percent at the end of 2010, the highest in the industrialised world.

The pact, which was finalised on Tuesday, also introduces a new subsidy of 400 euros (550 dollars) to jobless workers whose benefits have run out and who are in training and incentives to hire unemployed youths.

Zapatero said the pact included an agreement on the "basic principles" of a reform to Spain's collective bargaining system, which ensures joint wage rises across sectors and industries.

The system has been blamed for making Spain's workers uncompetitive but Zapatero said it will be made simpler and make wage negotiations at the company level more frequent.

"We have the strength and the capacity to overcome the economic crisis and we must do it through consensus instead of confrontation," the head of the CCOO union, Ignacio Fernandez Toxo, said after the signing ceremony.

The Spanish economy, the European Union's fifth biggest, slumped into recession during the second half of 2008, reeling under the twin blows of a global financial meltdown and the collapse of a labour-intensive construction boom.

It emerged with tepid growth of 0.1 percent in the first quarter of 2010 and 0.2 percent in the second but then stalled with zero growth in the third. The government estimates it rose by about 0.2 percent in the fourth quarter.

The IMF predicts the Spanish economy will post growth of 0.6 percent this year, 1.7 percent in 2012, 1.9 percent in both 2013 and 2014 and then 1.8 percent in 2015.

© 2011 AFP

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