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Spain must ‘quickly’ apply adjustment measures: central bank

Spain must “quickly” apply economic adjustment measures aimed at reviving its economy, Bank of Spain governor Miguel Fernandez Ordonez said Wednesday.

“There are still important adjustment measures that must be applied, quickly, to avoid holding up the economic recovery,” Ordonez said.

“I am referring in particular to the need to finish absorbing the excess capacity of the residential construction sector, to consolidate the assets of the private sector and improve the competitiveness of the Spanish economy.”

Spain plunged into its worst recession in decades at the end of 2008 following the collapse of a decade-long property boom which had been the country’s engine of growth.

The downturn has caused the unemployment rate to soar to 20 percent, the highest rate in the 27-nation European Union after Latvia, and it has raised market worries over the country’s ability to trim its hefty public deficit.

The Spanish economy, Europe’s fifth-largest, only emerged from recession with tepid 0.1 percent growth in the first quarter this year.

The government has adopted austerity measures worth some 65 billion euros so far this year to slash the public deficit to the eurozone limit of three percent of Gross Domestic Product by 2013 from 11.2 percent last year.

Ordonez said it was “essential that the fiscal consolidation program be accompanied by structural measures aimed at strengthening the growth potential of the economy, on which the sustainability of public finances is heavily reliant upon.”

Separately, the Socialist cabinet approved reform of the labour market that is deemed crucial for reviving the economy, Deputy Prime Minister Maria Teresa de la Vega said.

“It is a necessary labour reform, of the future, one of the most important reforms of the last 20 years,” de la Vega told a news conference following a special cabinet meeting called to approve the measure.

The reform — which makes it easier and cheaper for firms to fire workers — must still be approved by parliament, where the government is seven seats short of a majority.