UPDATE 1-Spain approves crucial but contested labour reform

* Opposition mum on decree vote, but approval expected

* Popular Party calls government proposal slapdash

* Spanish/German 10-year bond yield spread at record

(Releads with decree issued, adds details)

By Sonya Dowsett and Elisabeth O’Leary

MADRID, June 16 (BestGrowthStock) – Spain’s minority government
issued a decree on Wednesday aimed at shaking up the country’s
rigid labour laws and said it would continue to seek support for
the bill from other parties ahead of a parliamentary vote.

Market worries about Spain’s debt position continued to
simmer, driving Spanish yield spreads against the German
benchmark to their highest level since the common currency was
adopted.

Analysts believe the bill will be ratified in parliament on
June 22, although key opposition parties have not yet given it
their support, because the opposition understands the importance
of labour reform in restoring confidence in the country.

“We will continue to work intensively to get as much support
as possible,” Maria Teresa Fernandez de la Vega told reporters
after the cabinet meeting.

Economists say labour reform is a vital step to restoring
long-term economic growth by easing the cost of hiring and
firing, amongst the most expensive in the developed world, and
making Spain’s manufacturing industry more competitive.

The package includes measures to cut the cost of firing,
simplify contracting and promote youth employment.

The decree becomes law as of Thursday but still needs to be
ratified next week. Unlike the austerity measures also passed by
decree last month, in the case of labour reform the parliament
will be able to debate and pass amendments which can take effect
retroactively, a process which could take up to a year.

Analysts say this process will likely make the reform
package tougher, firming up the matter of dismissal costs and
simplifying firing procedure.
“The labour market reform set to be approved today runs the
risk of being too light, although parliamentary passage should
beef it up,” said Javier Perez de Azpillaga, analyst at Goldman
Sachs.

NECESSARY BUT UNPOPULAR

Given that measures such as cutting severance pay are
unpopular with the public and the government is out of favour,
opposition parties do not want to be seen to publicly back the
Socialists, political commentators said.

“They will get enough support to pass (the decree) because
everybody is convinced that it is necessary, although the
measures are very unpopular and (most parties) don’t want to be
seen as supporting them openly,” said Juan Aviles, Professor of
Contemporary History at Spain’s Open University, UNED.

The governing Socialists can muster 169 votes in the
350-seat lower chamber, but the conservative Popular Party (PP)
with 153 votes and key minority parties have so far kept their
cards close to their chest as to how they will vote.

The austerity measures passed by just one vote.

The PP has not objected to labour reform in principle but
has criticised the decree, drawn up after the government failed
to reach consensus with unions and business.

“The government does not want to tackle labour reform in a
thorough manner,” said PP Secretary General Maria Dolores
Cospedal. “True reform is needed and not a slapdash job drawn up
to satisfy social groups and international markets.”

Spain is pushing through several economic programmes at the
same time, including the austerity and an overhaul of its
banking system, while bond markets fret about contagion in the
euro zone following Greece’s debt crisis.

The European Commission on Wednesday denied the European
Union, the IMF and the U.S. Treasury were drawing up a bail-out
plan for Spain including a credit line of up to 250 billion
euros [ID:nLDE65F0GX].

Spain’s biggest unions called on Tuesday for a general
strike in September against the labour reforms but commentators
say unions are in a weak position with unemployment at 20
percent and many workers on temporary contracts, so the strike
was unlikely to get much support.

Meanwhile the Bank of Spain said it would soon publish its
own stress tests on Spanish banks to prove they are sufficiently
capitalised to meet future economic downturns.

For a Scenarios on how labour reform might conclude, please
click on [ID:LDE65F0C3]

Stock Investing
(Editing by Sonya Hepinstall)

UPDATE 1-Spain approves crucial but contested labour reform