21 Dec 2010

Spain urged to make further reforms

5:30 pm on 21 December 2010

Spain is being urged to take steps to reform its labour market and raise taxes further if current budget cuts do not go according to plan.

The Organisation for Economic Co-operation and Development says Spain is slowly emerging from recession, but needs to do more.

The OECD also called for pension reform and an increase in the retirement age.

Labour Minister Valeriano Gomez said the government intends to do just that.

The BBC reports there has been much speculation recently that Spain might need to ask for financial assistance from the European Union.

A bailout of the Irish Republic was agreed last month by the EU and the International Monetary Fund. A similar package was agreed with Greece earlier this year.

The Spanish government has repeatedly insisted that it will not need to apply for a bailout.

The OECD said Spain should return to growth next year. It forecast that Spain's economy would grow by 0.9% in 2011 and by 1.8% in 2012.

It forecast that unemployment, which at almost 20% is the highest in the EU, would "drop slightly" to 19.1% next year and to 17.4% in 2012.

The OECD acknowledged the government's efforts at "substantial fiscal consolidation", as well as its steps to "to address long-standing shortcomings in the labour market", but called for these measures to be "broadened and deepened".

Spain "must now enact major reforms to improve government finances and create jobs", it said.

The OECD said pension systems "must be reformed", not only by raising the retirement age, but by introducing restrictions on subsidies to early retirement.

Mr Gomez said the government was looking at pension reform.