market overview
Fixing this requires making the labor market more inclusive. So the IMF is recommending two things for Spain: make sure more people are working; and give firms the confidence to hire, even if it means some people are working in a different way, under more flexible conditions, or for less pay. We would like to see a more inclusive labor market rather than one divided between protected and unprotected workers; one that helps firms adjust to difficult times without having to let workers go. In other countries wages go up and down, and employment doesn’t move so much. Spain is the outlier. We want firms to be able to agree with their workers about working conditions that reflect economic conditions, and not having to respond just by sacking people. The labor market reforms adopted by this government in February of this year and by previous governments go in this direction. Of course, these are very sensitive issues that affect society at large and are difficult to change. Indeed, we suggest it might be helpful to have a more cooperative approach that involves the government, the labor unions, and the employers whereby regaining competitiveness should be the overarching objective. • IMF Survey online: Financial markets don’t appear convinced by the reforms already taken by the government—what more can they do to restore investor and market confidence? Daniel: Spain’s plans are good, it now needs to deliver. The country has passed many reforms and made many commitments, and now the government needs to deliver on them so the results can be seen. For example, it’s not enough to announce ambitious fiscal deficit targets, especially as in the past these targets were missed. The government now needs to hit these targets. Actually, it should be trying to surpass these targets, to generate good, not bad, surprises. The recent package of measures, which includes raising the value-added tax from 18 to 21 percent and the removal of the mortgage income tax deduc-
tion, is encouraging in this regard. These are measures well designed to minimize the drag on growth. But the problems that Spain faces in the financial markets go beyond the country’s borders, and speak to the design flaws in the eurozone. European leaders need to complete the reforms they have announced and fix the flaws in the monetary union. Most immediately, for example, Europe could draw up a roadmap for transforming the European loan to the government into a direct recapitalization of banks by Europe’s rescue fund, the European Stability Mechanism. Spain’s role would be to demonstrate to its eurozone partners that the country is putting its own house in order. Many of the reforms will take some time to bear fruit.Take the example of labor market reform; in the current difficult environment it’s hard to see that employment will be created quickly, but we should be able to see the signs of it working. We would like to see evidence that firms are now using the new law, for example, to have more firm-level agreements, and to change working conditions so that they don’t have to cut jobs. There are some tentative signs this could be happening. • IMF Survey online: What role will the IMF play in monitoring the
European financial assistance for Spain’s banks?
Daniel: We published our Terms of Reference for this monitoring on our website on July 20. Our contribution will take the form of technical assistance, and our goal is to provide our independent advice and views on what we find. This will involve monitoring Spain’s financial sector regularly, including the progress on the financial sector reforms the government has committed to when it agreed the loan with its European partners. We expect to deliver updates every few months or so detailing the progress made in restoring Spain’s banking sector to health. We will provide these regular reports to our Spanish and European counterparts, and the firm expectation is that they will be published promptly. During this process, we will of course be coordinating closely with our Spanish and European counterparts. At the same time, we are an independent institution, not party to the loan, and will report our views accordingly. Source: Author: IMF- International Monetary Fund Publication: IMF Survey Magazine Website: www.imf.org
Infodent International 4/2012
adjust by sacking temporary workers rather than by changing working conditions, including wages. This way of doing things disproportionately affects young workers. In the rest of the world they do a bit of both, hiring and firing, but also changing working conditions and adjusting wages. For example, temporary employment has fallen by a third since the beginning of the crisis, whereas permanent employment has only dropped by 6 percent.
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