Spain may miss deficit-reduction target for this year, Montoro says

Spanish Finance Minister Cristóbal Montoro has thrown into question the government's ability to meet its target of reducing the public deficit to 4.4 percent of GDP this year.

However, Deputy Prime Minister Soraya Sáenz de Santamaría said later on Friday that the government was determined to meet that target and would approve more reforms in order to do so.

In comments published Friday by Financial Times Deutschland, Montoro said while it is "desirable" to hit the target, the prior projection was based on "outdated" growth estimates by the outgoing Socialist government. He said the new Popular Party (PP) government would wait for the European Union's growth forecasts for Spain before giving a new reduction figure.

According to a draft version of a report by the International Monetary Fund (IMF) due to be released next week, the agency expects Spain's GDP to contract 1.7 percent this year and 0.3 percent in 2013. Estimates released in September predicted output would grow 1.1 percent this year. The secretary of state for public administrations, Antonio Beteta, said on Wednesday that it was likely the GDP forecast for this year would be a contraction of 0.5 percent.

Montoro said Spain does "not expect help" from the EU if it fails to meet the target, but asked for "understanding" and "time" to overcome the crisis. "This year will be difficult, exceptional," the minister said. "We want to get over the crisis as quickly as possible, but this means we need room to maneuver."

Separately, in a column written in The Wall Street Journal, Economy Minister Luis de Guindos called for the introduction of a uniform work contract to help address Spain's dysfunctional labor market, one of the culprits blamed for the highest unemployment rate among developed countries. The jobless rate was listed at 22.9 percent in November.

"We currently have around 40 different types of employment contracts. This has to be simplified with one unique full-time contract with common clauses for all new workers, and another to encourage part-time hiring," De Guindos wrote.

De Guindos said the labor reform the government is planning to introduce is aimed at creating jobs, and enhancing productivity and competitiveness. "Our wage-bargaining system needs to be deeply revised to allow for an efficient and non-inflationary mechanism based on productivity gains," he said. "In Spain, we have inherited a very centralized wage bargaining system that establishes salary increases at the sector level. This system has proved to be one of the main reasons for the loss in competitiveness we have suffered during the last decade."

He explained that wage-bargaining needs to be carried out by individual companies, and firms need to adapt to a changing environment.

Labor unions and business leaders have insisted they should be allowed to determine changes to the collective bargaining system. The administration has rejected calls from the CEOE, Spain's largest employer group, for a "crisis" work contract that includes a severance payment of 20 days wages for every year worked.