Fragile Spain

The Spanish cabinet has approved a series of long-awaited structural changes to its labor market designed to make it cheaper for businesses to shed workers. It's hoped the reforms will go some way to ease market and investor worries over Spain's public finances.

The reforms favor work contracts with a severance allowance equivalent to 33 days' pay per year worked, instead of the current norm of 45 days' pay per year. 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 percent, the highest in the European Union after Latvia.

The reforms are also aimed at increasing the rights of some workers by driving up the costs for employers to hire temporary staff. More than a quarter of Spanish employees are on temporary contracts giving them few rights.

Reforms divide Spain

The government decided to adopt the reforms unilaterally after unions and employers failed to reach an agreement in talks which had lasted for months.

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

The country's trade unions, meanwhile, have called a general strike over the restructuring effort, which are to take effect immediately but will eventually require parliamentary approval.

The reforms were approved at a rare mid-week cabinet meeting, allowing Prime Minister Jose Luis Rodriguez Zapatero to take the package with him to an EU summit in Brussels on Thursday.

The EU and the International Monetary Fund had asked Spain to take measures to reform its labor market amid concerns the country could be heading for an economic meltdown similar to that of Greece.

Author: Darren Mara (dpa/AP)

Editor: Michael Lawton