IMF vindt dat Spanje drastisch moet bezuinigen (en)
The International Monetary Fund i has issued blunt warnings to Spain, calling on Madrid to implement harsh cuts and transform the country's labour market and pensions system, while also stressing the need for consolidation in the domestic banking sector.
The requested changes, contained in an interim IMF report published on Monday (24 May), are designed to help employers by reducing severance payments, make it harder for unions to fight dismissals and encourage "wage flexibility".
The Washington-based lender also urged the Spanish Socialist government to increase the retirement age to 67.
"Spain's economy needs far-reaching and comprehensive reforms," said the IMF report. "The challenges are severe: a dysfunctional labour market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anaemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness."
Additional economic reforms are likely to add to growing tensions between Madrid and trade unions however, after the government last week passed a €15 billion package of austerity measures in a bid to reduce the country's budgetary deficit which currently stands at 11 percent of GDP.
The report comes after Spanish authorities were forced to rescue regional lender Cajasur over the weekend. Spain's extensive network of savings banks has been hit by the collapse of the country's once-buoyant housing market, with the IMF urging consolidation and new legislation to "reduce political influence" in the lenders.
Spain also suffers from an unemployment rate of over 20 percent, roughly twice the EU average.
"The labour market is not working," said the IMF report, attacking union protections. "Unemployment is structurally high and excessively cyclical ... The wage bargaining system, which hamstrings wage and firms' flexibility, is ill-suited to membership of a currency union."
Sluggish growth is likely to prove an additional headache for Madrid, with the IMF report forecasting a 0.4 percent contraction this year, followed by a 0.9 percent expansion in 2011, half the predicted level for the EU as a whole.
Tensions
The Spanish government moved quickly to limit political damage from the report on Monday, issuing a quick response saying it largely agreed with the IMF's assessment.
The main opposition centre-right Popular Party has been highly critical of the administration's handling of the financial crisis, while last week's austerity measures, which include a five percent cut to public sector salaries, have induced the wrath of trade unions which are now threatening a general strike.
The unpopular spending cuts are part of a deal brokered between EU leaders earlier this month that saw the bloc agree a massive financial rescue mechanism over concerns Greece's debt crisis could spread to other fiscally vulnerable eurozone states such as Spain.
Officials quashed rumours last week that the Spanish government was considering an application to the €750 billion package, which includes €440 in bilateral loan guarantees, €60 billion in money raised by the European Commission and €250 from the IMF.
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