ECB's Paramo: Spain must finish labor reform

Reuters

MADRID (Reuters) - Financial markets will remain skeptical that Spain can steer clear of the crisis until the country manages to finish its reform of the labor market, a senior European Central Bank policymaker said in an interview.

"Markets are surprised that the government may not be capable of concluding a much needed labor reform ... Until we finish that reform we won't see the end of market distrust," said Jose Manuel Gonzalez-Paramo, Executive Board member of the ECB, in an interview in La Vanguardia newspaper on Sunday.

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Spain passed a labor reform last year, but labor unions, business leaders and the government have stalled over final parts of the process, including changes to the collective bargaining system whereby wages are fixed across entire sectors and linked to inflation. The government said on Friday it hoped to conclude a deal by June 6.

Gonzalez-Paramo also urged the government to finish off restructuring its financial system, and Spain's autonomous regions to meet new tough deficit targets.

Spain's economy is struggling to recover at a decent rate and unemployment has surged to over 21 percent, leaving some investors to fear it will be the next euro zone member following Portugal to call for a bailout.

Gonzalez-Paramo said Spain was the master of its own destiny with its future dependent on necessary reforms.

He also argued against a potential restructuring of Greece's debt, which many analysts see as inevitable. The country must meet its debt targets agreed with the EU and IMF.

"Greece needs to fulfill the pact already in place. If after a year later there is part of it that hasn't been met then it should take additional measures," he said.

"When people talk of restructuring its debt they are not aware of what it means."

The central bank has warned of dire consequences with effects worse than the fallout of Lehman Brothers if a restructuring took place.

He also urged Greece to make changes to its economic and tax models and to step up planned privatizations.

"Greece belongs to a club of advanced countries and with that comes demands," he said.

(Reporting by Nigel Davies; Editing by Jon Hemming)