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Insolvency fears for Spain as talks stall on major labour reforms
29 May 2010 @ 20:32

TALKS between Spanish trade unions and business leaders on labour reform ended without success yesterday, casting further doubt over reforms crucial for reassuring markets of the country's long-term solvency.

The breakdown in talks occurred as the government ruled out early elections, despite parliamentary winning backing for a 15 billion (£12.8bn) austerity package by a single vote. .

Responding to questions over how prime minister Jose Luis Rodrig

uez Zapatero hopes to pass a budget for next year in the face of diminishing parliamentary support, deputy prime minister Maria Teresa Fernandez de la Vega said: "The people gave us their trust to govern for four years. That time is not up."

On Thursday, Mr Zapatero's austerity package freezing pensions and cutting civil servants' wages passed by just one vote in parliament and opposition leaders called for an election.

If unions and business cannot agree on labour reforms by Monday, the Spanish government will push through changes to labour market laws itself, the parliamentary spokesman for the governing Socialists, Jose Antonio Alonso, said.

This raised the spectre of a general strike and would add to pressure on a government struggling to pass major legislation and hang on to power. The government was set to make a last-ditch attempt to get an agreement with unions and business in talks this weekend.

"It is possible the government will have to reform the labour market through a royal decree," Mr Alonso said.

Growing industrial unrest could unnerve investors, who fear the reaction seen in Greece could spread to other eurozone countries, undermining fiscal consolidation efforts. Such doubts have already led investors to question the long-term survival of the euro.

Unions are already set for a one-day strike over public sector pay cuts on 8 June and warned this week that reform by decree would prompt a general strike.

Unions represent less than 20 per cent of the workforce. But public anger has been rising at the government, which is trailing the opposition conservative Popular Party in opinion polls.

In a further blow, finance minister Elena Salgado said the cuts would mean higher unemployment and slower growth.

Europe's top job-creator only two years ago, Spain now has its highest unemployment rate.

The official jobless rate forecast was that it would finish the year at 19 per cent, but Ms Salgado revised that upward to 19.4 per cent. She also raised the projections for 2011 and 2012, and said that in 2013 Spain would still have an unemployment rate of 16.2 per cent, 0.7 points higher than the previous forecast. Ms Salgado signalled yet further austerity, saying the cabinet had approved a spending limit for 2011 that was 7.7 per cent lower than the figure for this year.

Source: The Scotsman

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