Eurogroup and EC insist Spain needs second round of labor reform

The president of the Eurogroup, Jeroen Dijsselbloem, on Thursday reiterated calls for Spain to undertake a second round of reforms of the labor market in order to strengthen the country’s recovery from a deep recession.

As Dijsselbloem himself told reporters during a visit to Beijing accompanied by the European Union commissioner for economic and monetary affairs, Olli Rehn, he had already made a speech in Madrid in October along the same lines. “New labor reforms will work, not only in Spain, but also in other countries,” he said.

In a report released in December, the OECD also suggested that severance pay remains high in Spain and that more cuts were necessary to tackle high unemployment, which currently stands at 26 percent.

The labor reform introduced in February 2012 cut severance pay for permanent workers from 45 days of wages for each year of service to 33 days, and the maximum amount from 42 months’ salary to 24 months. It also introduced a series of so-called “objective causes” such as falling sales and technological and organizational changes that allow companies to lay off workers en masse with severance pay of only 20 days’ wages for every year worked, up to a maximum of one year’s salary.

The Paris-based organization also recommended that the government rein in the discretionary power of labor courts to declare dismissals null and void to “extreme cases.”

In response to the OECD report, Labor Minister Fátima Báñez at the time ruled out a further major overhaul of the legislation. “The labor reform is already in place, and what we’ll do when necessary is to make adjustments in order to allow it to deploy its potential to create jobs,” she said.

The government has subsequently introduced measures to simplify the hiring of new workers. In December it also passed a decree providing employers with more flexibility to extend the number of extra hours it can require employers on part-time contracts to work.

For his part, Rehn told reporters in the Chinese capital that the Commission was in “close contact” with the government of Prime Minister Mariano Rajoy on the issue. “We maintain a constructive dialogue with the Spanish government with respect to the second round of labor reform,” he said.