The EC Asks Spain Government For Prudence With Labour Reform Review

The EC believe that there have been advances in the capacity of Spain's labour and social services

According to a report on the Spanish economy in the daily newspaper Expansión, the European Commission (EC) has urged the Spanish government to “carefully” evaluate the potential impact of any modifications to the 2012 labour reform. It has called on the government to ” preserve “the most positive aspects of it, which “supported solid job creation” during the recovery phase. In this respect, and citing a recent study from the International Monetary Fund (IMF), it states that “the labour reforms adopted in 2012 and 2013 in response to the crisis have played an important role in promoting a rich recovery in employment which began in 2014.” Specifically, the report flags that the new government intends to restore bargaining power and “surmount” labour segmentation. These changes involve, for example, abolishing the one-year limit for the automatic extension of collective agreements (ultra-activity) and recovering the prevalence of sectorial collective bargaining versus agreements at the company level.

With regard to the latest increases in the minimum inter-professional salary (SMI), the report highlights that labour costs have increased and its effect on working poverty has not yet been quantified.

Furthermore, the EC has warned that permanently linking pensions to the evolution of CPI jeopardises the sustainability of the system in the medium and long term. It also flags that these actions, without any compensatory measures, would favour current pensioners at the expense of new generations.

In this regard, it warns of the consequences of the government’s plans for permanently linking the evolution of pensions to CPI and “disassociating” their levels from changes in the Spanish population’s life expectancy. The document points out that, even implementing the 2013 reform “in full,” Spanish pensioners would continue to have a higher replacement rate than the EU average in the long term.

On the other hand, the EC has flagged that the high level of public debt in Spain poses a risk to the sustainability of its public finances. It notes that this has fallen, despite the good economic situation and low financing costs over the past years. They state that “member states with high levels of public debt should make rapid progress towards reducing the debt,” as well as rethink their spending priorities to “make room for additional investments.” This should create enough margin to adopt a pro-cyclical policy in the event of a crisis. In other words, avoid having to cut investment or raise taxes during lean times. In the European Executive’s opinion, the high level of public debt in Spain, which at end-2019 amounted to 96%, represents a “vulnerability” for the country’s economy.

Finally, regarding the advances in the reforms it recommended Spain undertake last May, the EC believes progress has not been made in preserving the sustainability of its pension system or strengthening its fiscal framework. It does believe, however, that there have been advances in energy efficiency and in strengthening the capacity of Spain’s labour and social services.