Therapies

The International Monetary Fund (IMF) is recommending a new labor market reform for Spain and a more finely tuned handling of economic policy. These recommendations may be sound, but some of them call for clarification as to the depth of the changes. Given that the level of joblessness is “unacceptably high,” the report says that a new reform must further reduce the cost of firing, to put it in line with the European average, and reduce wages. However, any indirect intervention to reduce wages will have consequences that call for careful calculation. Because, while the IMF has rightly pointed out that the rate of deficit reduction must be gradual in order not to strangle growth, it must keep in mind that the Spanish economy needs to see recovery of demand, which is at odds with an excessive reduction of wages.

It seems as if the report’s authors wanted to go back in time, to design a labor reform different from the one that was finally enacted. After initially applauding that legislation, the report proceeds to indirect yet obvious criticisms: the Spanish labor market needs more precise definition of the objective causes for layoffs, and a new framework for collective bargaining. Had the Labor Ministry agreed to put an end to the dual system of labor rights in hiring (the “single contract”), it would have been simpler to effectively produce what the IMF is now calling for — by means of a pact between employers and unions and “swapping” lower wages for more employment with a view to reducing this “unacceptable level” of unemployment. Now the scenario is different: political negotiation with the unions and the opposition would be more arduous, and the conflictive aspects more intense, within the framework of the recovery that the government has been proclaiming, perhaps too hastily.

The IMF also dampens the official euphoria, warning that, while some signs point to a more or less speedy exhaustion of the recession phase, the prospects are still worrisome. There are indications that the contraction of GDP has bottomed out; but it is not yet possible to discern whether the growth will be accelerating or sustained (V-shape recovery), or whether growth rates will remain very low throughout the next few quarters. The IMF’s version is clear-cut: the recovery will be consolidated if the reforms are speeded up and, above all, if credit again becomes available to companies.

The prime minister and his economic team would do well to read the IMF’s report carefully. Apart from the congratulatory statements (those given for financial stability seem excessive, given that neither deficit nor debt objectives have been fulfilled), it provides a basis upon which to moderate the policy of adjustments (to moderate does not mean to abandon), and offers solutions that may be very useful, if they are duly debated and properly applied. Such as, for example, the creation of an independent commission on growth, to set in motion the reforms or the immediate reductions in contributions to the Social Security system, compensated by hikes in indirect taxation.