Spanish PM trumpets economic uptick, commits to reforms

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Spain's embattled prime minister moved Thursday to reassure the country -- and nervous markets -- over the economy, announcing a return to positive growth in the fourth quarter and a small rise in the minimum wage and in pensions for 2011.

In a year-end press conference following a cabinet meeting, Jose Luis Rodriguez Zapatero also vowed that Spain would meet its public deficit target for next year, essential for easing investor fears of a Irish or Greek-style bailout of its battered economy.

The Spanish economy, the EU's fifth largest, slumped into recession during the second-half of 2008 as the global financial meltdown compounded the collapse of the once-booming property market.

It emerged with tepid growth of just 0.1 percent in the first quarter and 0.2 percent in the second, but then stalled with zero percent growth in the third.

The government introduced this year tough labour reforms to slash the jobless rate of almost 20 percent, and austerity measures to rein in the public deficit from 11.1 percent of gross domestic product last year to the eurozone limit of 3.0 percent in 2013.

But Zapatero, whose popularity has plummeted amid the economic crisis, sought Thursday to bring late Christmas cheer to the country by announcing some good news.

He said 2010 "has been a difficult year," but 2011 "should be a year in which we go from recession to recovery."

"The fourth quarter will have positive growth," the Socialist leader said, but added "we know it will be slow, weak growth."

Zapatero also appeared to be addressing sceptic investors when he confirmed the government's previously announced plan to reform the pensions system by raising the retirement age from 65 to 67.

The reform of the retirement age would be carried out "with flexibility" and progressively until the year 2027.

"We must take measures" because "the largest generation in the history of Spain will reach retirement" in the coming years, placing a massive burden on the social security system.

The prime minister also vowed reforms to Spain's collective bargaining rules to further liberalise the job market.

But he added that "despite the economic crisis, we continue to make a special effort at solidarity."

To that end, he announced the minimum wage will rise by 1.3 percent to 641.56 euros (851.60 dollars) a month and pensions by an average of 2.3 percent and the minimum rate by 1.3 percent.

Before the economic crisis, the government had forecast the minimum wage, one of the lowest in Europe, would reach 800 euros a month by 2012.

State pensions, except the minimum, were frozen as part of the austerity measures to slash the deficit.

Zapatero said the "deficit-reduction targets" of 9.3 percent of GDP this year and 6.0 percent in 2011 "will be met" which will "generate confidence in the medium and long term."

The Bank of Spain said earlier Thursday that the economy is seeing a "slight recovery, after the oscillations of recent quarters."

But, in its monthly report, it also warned that business confidence in the Spanish construction sector had hit its lowest point since the property bubble burst in 2008.

The Treasury announced Wednesday that the government will slash net borrowing from bond markets by nearly a quarter in 2011.

Investors have shown deep concern over the annual deficit being racked up by the Spanish government and its heavy reliance on the bond markets, leading them to demand higher and higher returns.

© 2010 AFP

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