Spanish government set to approve labour market overhaul

16th June 2010, Comments 0 comments

The Spanish government is to approve on Wednesday a labour market overhaul deemed crucial for reviving the economy and fending off a Greek-style debt crisis despite union calls for a general strike.

Socialist Prime Minister Jose Luis Rodriguez Zapatero's cabinet is scheduled to approve the reforms -- which make it easier and cheaper for firms to fire workers -- at a special cabinet meeting.

The reform package will then be submitted to a vote on Tuesday in parliament, where the government is seven seats short of a majority and relies on the support of smaller, regional parties to pass legislation.

Last month the assembly passed the government's 15-billion-euro (18.4-billion-dollar) austerity package, which includes cuts to public workers' salaries, by just one vote.

"This reform is necessary to revitalise the labour market," Labour Minister Celestino Corbacho said ahead of the cabinet meeting.

Spain's unemployment rate has soared to 20 percent, the highest rate in the 27-nation European Union after Latvia's, following the collapse of the labour-intensive construction sector at the end of 2008.

The rise in the unemployment rate from a low point of about 8.0 percent in 2007 has caused government spending on unemployment benefits to soar, helping to lift Spain's public deficit to 11.2 percent of gross domestic product last year, the third-highest level in the eurozone after Greece's and Ireland's.

Many economists blame the high jobless rate on the high cost of firing workers in Spain, which makes employers reluctant to hire staff and encourages the use of temporary contracts that have few benefits and rights.

Workers on full contracts are entitled to severance pay of as much as 45 days per year worked, one of the highest levels in Europe. Under the government reform this would be reduced to 33 days for some contracts.

The government reform also calls for the creation of a government-sponsored fund for each worker that could be used by firms to pay a portion of an employee's severance in case of a dismissal.

The government is pushing ahead with its own version of the labour market reform after talks between unions, employers and the government to reach a consensus collapsed last week after nearly two years of meetings.

Spain's two largest unions, the CCOO and the UGT which represent over two million workers, on Tuesday called for a general strike on September 29 to protest the labour market reform.

They accuse the government of abandoning its commitment to social policies and hurting workers with the reform.

It will be the country's first general strike since 2002 and the first since Zapatero's government, which has thus far maintained good relations with the unions, took power six years ago.

Spanish workers last went on strike on June 8 when tens of thousands of nurses, teachers and other civil servants staged a one-day stoppage to protest the cuts to their salaries as part of government austerity measures aimed at slashing the public deficit to the eurozone limit of 3.0 of GDP by 2013.

Spain's borrowing costs have risen sharply amid market fears that Madrid will need an international bailout like the one given Greece earlier this year.

Earlier Wednesday Finance Minister Elena Salgado denied a report in Spanish business daily elEconomista which said the International Monetary Fund, the European Commission and the US Treasury where drawing up a liquidity plan for Spain that includes a credit line of up to 250 billion euros.

"Absolutely not. I don't know anymore how you want me to deny it," she told reporters when asked about the possibility of such a plan being prepared.

© 2010 AFP

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