UPDATE 2-Spain vows labour reform by June with deal or not

* IMF chief praises austerity plan

* Labour reform talks resume after deadline extended

* Business boss says deep differences remain

(Adds business leader saying talks to continue)

By Sarah Morris

MADRID, May 31 (BestGrowthStock) – Spain aims to pass a long-awaited
labour market reform before the end of June, with or without an
agreement with unions and business leaders, Economy Minister
Elena Salgado said on Monday.

Negotiations on thrashing out a deal were held on Monday
after the Labour Ministry said it would extend a deadline for
agreement by a week. But Salgado made clear the government would
press ahead with the reforms regardless of the outcome of talks.

“The period to reach a pact on the labour market reform is
coming to an end and if these talks do not produce the desired
results, the government will still begin these reforms …
before the end of June,” she said at a conference.

Prime Minister Jose Luis Rodriguez Zapatero, who is battling
to prove to nervous world markets that the euro zone’s fourth
largest economy will not follow Greece into a debt crisis, got a
boost on Monday from IMF chief Dominique Strauss-Kahn.

The International Monetary Fund’s managing director praised
an austerity budget package which scraped through parliament
last week, but made clear more needed to be done.

“The measures that the government has been taking are strong
and should help recover confidence in the future,” Strauss-Kahn
said. “The issue now is to see how the measures will be
implemented, especially those concerning the labour market,” he
told the ABC newspaper.

The minority Socialist government maintained a neutral tone
in a statement issued after the end of Monday’s talks.

“Differences between the parties still exist on some aspects
of work relations that are being discussed,” the Labour Ministry
statement said.

“However, the parties understand that there is still a
chance of reaching an agreement so they have decided to continue
talks in the coming days.”

Gerardo Diaz Ferran, chairman of Spain’s CEOE business
association, said the three-way talks would continue but the
participants were far from close to an agreement.

“The truth is there are still a lot of differences,
significant differences, between us, and we’re not close to an
agreement,” he told reporters.

“The three parties have decided it’s worth giving it a few
more days to see if by doubling our efforts, which I don’t know
how we’re going to do because we’re already giving all we’ve
got, we can bring our positions a little closer,” he added.

POLL SLUMP

Imposing a deal without the unions’ agreement would probably
set the Socialists on a collision course with their traditional
allies at a time when Zapatero could use their support.

Spanish companies have long complained that burdensome
hiring and firing costs discourage recruitment, exacerbating the
unemployment rate which has hit 20 percent.

But with growing political opposition at home, Zapatero’s
ability to push through reforms is limited.

The 15-billion-euro ($18.38 billion) austerity plan scraped
through parliament by just one vote on May 27, prompting
speculation that Zapatero may be forced to call early elections
if his 2011 budget proposal, due in September, is rejected.

Opinion polls over the past few days show the main
centre-right Popular Party would beat the Socialists by up to
10.5 percentage points if the elections were held now.

BONDS STAY CALM

Fitch Ratings agency downgraded Spanish sovereign debt to
AA+ on Friday night [ID:nLDE64R25A], but markets barely reacted
on Monday with 10-year bond spreads rising only five basis
points against the German bund from Friday’s close.

Some analysts had expected worse after Standard & Poor’s
last month downgraded Spain by one-notch to AA with a negative
outlook. Fitch said its outlook on the new rating was stable.

“There’s some tolerance in this rating level,” Fitch analyst
Brian Coulton told Reuters. “There will be some deterioration in
the credit profile going forward but … at this point our
judgment is that we will not going to be taking the rating down
further in the next year.”

Spain’s two largest unions have threatened a general strike
if the government tries to impose reform on its own.

Without citing sources, El Pais said the unilateral plan the
government was working on would allow companies to make greater
use of cheap work contracts for a broader range of employees.

At the moment, these special contracts allow some workers to
be hired on the basis of reduced redundancy payments — 33 days
of salary per year worked instead of the normal 45 days — in
the event they are later fired.

The government has said if it is forced to try to implement
its own plan, it would do it by legal decree, which still has to
be approved by parliament but cannot be amended.

Stock Analysis
(Additional reporting by Nigel Davies and Emma Pinedo; Editing
by Jon Boyle)

UPDATE 2-Spain vows labour reform by June with deal or not