MercoPress. South Atlantic News Agency

Spanish government struggling to survive amid growing doubts about the economy

PM Jose Luis Rodriguez Zapatero leads a weak government in the worst confidence crisis since Spain became democratic

The Spanish government Wednesday approved a reform to make the labour market more flexible, amid growing international concern over the stability of the country's economy.

Deputy Prime Minister Maria Teresa Fernandez de la Vega described the reform as “ambitious, substantial and far-reaching.”

Trade unions have called a general strike for September 29 over the reform, which will make firing workers easier in an attempt to revive the and to dent Spain's 20% unemployment rate.

Prime Minister Jose Luis Rodriguez Zapatero's minority Socialist government is in talks with opposition parties to win initial parliamentary approval for the decree on June 22.

Later on, the decree was expected to be submitted to a wider parliamentary debate, which could lead to parliament modifying it before it is turned into a law.

Should parliament reject the reform, the government will have to abandon it in a major political setback for Rodriguez Zapatero's already weak government, analysts said.

The government decided to adopt the reform unilaterally after unions and employers failed to reach an agreement in talks lasting for months.

The reform favours work contracts with a severance pay of 3 days per year worked, instead of the current norm of 45 days per year worked. A government-managed fund will cover a part of the severance pay for indefinite work contracts.

The high cost of firing workers is seen as one of the factors contributing to Spain's unemployment rate of 20%, the highest in the European Union after Latvia.

The reform is also aimed at increasing the rights of some workers by making it more expensive for employers to hire temporary workers. More than a quarter of Spanish employees are on temporary contracts giving them few rights.

The general strike will be the first faced by Rodriguez Zapatero, who had good relations with unions for six years, until he was forced to trim social benefits under growing international pressure over Spain's 11.2 per cent budget deficit and large private debt.

The EU and the IMF had requested the labour reform as part of efforts to guarantee Spain's economic stability amid concerns that the country could be heading for an economic meltdown similar to that of Greece.

The European Commission on Tuesday backed the 15-billion-Euro austerity package which has been approved by Spain, but called for additional spending cuts, according to Spanish media.

The additional cuts were covered by an agreement by Spain's regional governments to slash spending by 11 billion Euros in 2010 and 2011, Economy Minister Elena Salgado said Wednesday.

Meanwhile, Spanish bonds were falling relative to German bunds, amid reports that Spain might seek aid from the EU 750-billion-Euro rescue fund after Spanish banks were unable to obtain credit on the international market.

IMF director Dominique Strauss-Kahn is scheduled to arrive in Madrid on Friday.

Bank of Spain governor Miguel Angel Fernandez Ordonez said the central bank would make public stress tests that have been carried out on Spanish banks to show that they had “enough capital” to face “even complicated growth scenarios in the near future”.