Spanish labor reform plan gets tepid welcome

Commentators called the labor plan weak for failing to tackle head on the issue of cutting the cost of firing workers.

But in a recession which has put almost one in five Spaniards out of work, Friday's proposal at least got an initial green light from both unions and businesses.

This offered a breather for Socialist Prime Minister, Jose Luis Rodriguez Zapatero, who is battling with a credibility crisis and a towering budget deficit which he cannot cut if he does not reduce unemployment.

Right-leaning newspaper, El Mundo, slammed Zapatero for not presenting more concrete measures. “Zapatero continues to give the impression that he is not aware of the magnitude of the crisis,” it said in an editorial.

The Bank of Spain has said that the country can hope to emerge from its deepest recession in 40 years only through a labor market reform.

Zapatero's labor market blueprint will revive talks which have stagnated for months as Spain's problems mounted. But it has not removed the threat of a general strike by the biggest trade union over the badly-handled pensions proposal last week, which enraged even Zapatero's supporters.

Making Spain's labor markets more efficient would reassure investors that the government will be able to boost tax revenue when economic activity benefits from the changes, as well as controlling social spending such as unemployment benefits.

This would help Spain to cut its budget deficit which hit 11.4 percent of gross domestic product in 2009.

The scale of the deficit, along with a crisis in Greece, has raised fears of a debt default in the southern euro zone and boosted the spread of Spanish 10-year Treasury bonds over benchmark German bunds to over 100 basis points.

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