Trichet: Spain must 'deepen' labour reforms
European Central Bank President Jean-Claude Trichet urged Spain on Friday to expand a labour market overhaul and deepen pension reforms, saying both were "essential" to its prosperity.
Spurred by market fears of a Greek-style debt crisis, Spain's Socialist government has embarked on reforms to make it easier to hire and fire workers, and it plans to raise the retirement age.
"It is extremely important to deepen the reform of the labour market, to have deep reforms of the pensions" system, Trichet told a news conference in Madrid.
These are both "essential for the prosperity of this economy," he said.
Spain's labour reforms, which received final approval from parliament on September 9, cut the high cost of firing workers and gave companies more flexibility to reduce working hours and staff levels in economic downturns.
They were aimed at slashing an unemployment rate that is almost 20 percent, the highest in the European Union.
The reforms have faced fierce opposition from the country's major unions, which staged a general strike on September 29 in protest, but the government has shown no signs of wavering.
Prime Minister Jose Luis Rodriguez Zapatero's government also plans to gradually raise the retirement age from 65 to 67 to safeguard social security for a rapidly ageing population despite strained public finances.
The government this year also introduced austerity measures so as to slash its public deficit from 11.1 percent of gross domestic product last year, the third highest in the eurozone after Greece and Ireland, to 3.0 percent -- the EU limit -- by 2013.
"For all countries, structural reforms are essential, not only to consolidate the financial position but also to elevate the growth potential," said Trichet, who was in Madrid to attend a conference on cooperation between the eurozone and Latin American central banks.
"It is extremely important that the deficit target (in Spain) for this year and next year are fully substantiated by measures."
The ECB chief Friday also said bank stress tests would be organized regularly in the European Union.
"Stress tests are a very useful concept and tool. It is certainly important that they are made on a regular basis," he said.
The health of the Spanish banking sector has come under market scrutiny as the Irish crisis reawakened concerns about the Spanish property-dependent economy and financial sector.
However, the stringency of European stress tests has been called into question by the markets.
Bank of Ireland and Allied Irish Banks passed the exams in July, only to be propped up by the state a few months later. Ireland has since been thrown an 85-billion-euro rescue line by the European Union and IMF.
Bank of Ireland and Allied Irish Banks passed the exams in July, only to be propped up a few months later as part of an 85-billion-euro Irish rescue package from the European Union and IMF.
The EU economic affairs commissioner, Olli Rehn, said this week new "even more rigorous and even more comprehensive" stress tests would be organised in February, this time including a look at liquidity positions.
The tests are designed to determine the financial capacity of banks to withstand economic crises of varying degrees of severity.
Of 91 European banks tested last July, only seven -- five in Spain, one in Germany and one in Greece -- were found to be vulnerable to economic stress.
© 2010 AFP