Spain allays contagion fears

Spain's Socialist government is confident it can deliver on labour reform and has no doubts about its ability to ride out the storm rocking the euro zone and meet fiscal targets, the deputy prime minister said on Tuesday.

"The Spanish economy is reliable. We will meet our deficit target," Deputy Prime Minister Maria Teresa Fernandez de la Vega told Reuters in an interview.

Fears that Spain could enter into a debt spiral like Greece and be hit hard as concerns over weak euro zone members spread were unfounded, De la Vega said.

"There is no risk of any contagion effect from Greece. The fears are unfounded. We will continue to do our homework in terms of meeting our commitments," she said.

Renewed selling gripped euro zone financial markets on Tuesday as concerns mounted that the record €110 billion (Dh524.5bn) EU/IMF rescue package for Greece would not stop a debt crisis spreading to other weak euro zone members. Spanish stocks closed more than five per cent lower.

Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed as "complete madness" a market rumour that his country would ask for €280bn in aid from the euro zone. The Spanish Government has promised €50bn of budget cuts to 2013 to bring the country's deficit down to three per cent of GDP from 11.2 per cent last year, through a hike in value added tax and a freeze on civil servants' wages.

De la Vega played down that Spain may need to introduce further austerity measures to meet its budget targets. "The most important thing at the moment is to carry through with the measures we have already announced," she said.

However, De la Vega said there could be significant advance later this month on reforming the country's inflexible labour market.

Along with budgetary consolidation, labour reform is the most pressing element for Spain, which currently has the highest unemployment level in the euro zone running at around 20 per cent, economists say.

"The talks are going well. I believe that there will be an important advance made in May towards reaching an agreement," between unions, employers and the government, De la Vega said.

Labour market reforms, which aim to make it easier for companies to hire and fire, have met with resistance from the country's powerful unions but the government has said it will not attempt to pass any reform without agreement from both unions and business leaders.

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