June 18, 2021

The EU asks Spain not to repeal the labor reform



Brussels sends a Serious notice to Pedro Sánchez’s executive in coalition with United We and throw an alert on dangers of undertaking a counter-reform both in the field of pensions and in the labor market. In a detailed report of more than 100 pages, the Community Executive states that Spain’s fiscal sustainability is at risk in the medium term and concludes that the linkage of pensions to rising prices, with the aim of maintaining the purchasing power of retirees, can cost up to four points of the Gross Domestic Product (GDP) by 2050. This figure is in line with the predictions of the Bank of Spain, the International Monetary Fund and the “think tank” Fedea.

In addition, the report recalls that “the new Government has also announced its intention to eliminate the sustainability mechanism provided for in the 2013 reform and that adjusted the level of the initial pension to changes in life expectancy. According to preliminary estimates by the Community Executive, this would add at least 0.7% of GDP to long-term pension spending. These two measures mean for Brussels «Benefit today’s pensioners at the expense of future generations, unless compensatory measures are put in place »that the document does not detail.

Too temporary

Regarding the changes that the Spanish Government wants to introduce in the labor reform, the European Commission recalls that despite the recovery of employment after the worst moments of the crisis, unemployment remains “very high”, especially for young people and low-skilled workers, which makes support plans necessary for these segments. In addition, put your finger on the sore over the high percentage of temporary contracts, the highest within the community club, with 26%. For the Commission, this has a “negative impact” on the training of workers and prevents the increase in productivity. «Temporary contracts are increasingly shorter and are used in sectors with little seasonality. Employment subsidies are not effective in promoting stable jobs, ”the text warns.

For now, the Spanish Executive has merely announced that it will repeal the most damaging aspects of the labor reform, such as the prohibition of firing an employee after sick leave, but has not offered a detailed plan of the changes. Brussels, for the moment, makes an announcement to navigators by pointing out that “the new Government has also announced its intention to revisit aspects of the labor reform of 2012, which has been recognized as the mainstay of the strong creation of employment during the recovery.” Therefore, the European Commission asks for a “careful evaluation” of any new measure with the aim of not reversing the achievements. On the rise of the minimum wage, Brussels is cautious when assessing its consequences, although it points out that the data of the Social Security affiliations indicate that it has had negative effects in sectors such as agriculture or domestic work.

Moreover, the analysis reviews the endemic evils of the Spanish economy and repeats many of the accusations made report after report, with hardly any changes: low productivity, indebtedness, lack of assistance to families, high percentage of population at risk of poverty (especially among children), lack of investment in R&D in both the public and private sectors, poor energy and rail connections and regulatory fragmentation that damages the market unit within the country and harms the economy. As for the bulge public debt, the report notes that Spain is on the European blacklist, which includes countries such as Italy, Belgium and France. In his opinion, they have not taken enough advantage of the winds in favor of the European Central Bank in recent years (with its expansive monetary policy) to reduce its debt ratios.

Brussels believes that Spain has room to raise VAT

To square public accounts and deal with the increase in public spending announced by the Government, Brussels considers that the Pedro Sánchez Executive has room for maneuver in raising taxes, apart from the “Google rate” and the new tax on financial transactions, the impact of which has not yet been analyzed by the European Commission. Therefore, it indicates as good options the rise in consumption taxes (limit the reduced and superreduced VAT rates), to property and the environment, since these increases, according to Brussels, have a “relatively limited impact on economic growth.” In this last section, the Commission argues that “Spain’s income from environmental taxes is still among the lowest in the EU” and concludes that “Spain is one of the member states most exposed to climate change” , so it calls for investment in water infrastructure and waste management while recalling the need to improve air quality in urban areas.

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