Spain Strikes Labor-Reform Agreement to Unlock EU Funds

(Bloomberg) -- Spain’s government struck a deal with unions and business groups to proceed with a long-awaited labor overhaul -- a move that will help unlock European Union pandemic recovery funds needed to perk up the economic recovery.

Thursday’s accord comes just days before a year-end deadline set by Brussels, which can now release more of the 140 billion euros ($158 billion) of grants and loans available for Spain to modernize an economy that’s heavily reliant on tourism.

Negotiations had dragged on for months over disagreements about temporary contracts and outsourcing in a country where a quarter of the labor force gets by on short-term gig work -- one of the euro zone’s highest levels.

“Today we moved toward a 21st century model of labor relations,” Prime Minister Pedro Sanchez said in a tweet.   

While the pact is a victory for Sanchez as he races to shore up the economy amid the still-developing threat posed by the omicron coronavirus variant, it’s also a boost for one of his potential rivals at the ballot box.   

Labor Minister Yolanda Diaz, a communist lawyer, has emerged as Spain’s most-popular politician and a likely challenger in general elections scheduled for 2023. Diaz, a leader of the governing coalition’s junior partner, Unidas Podemos, is credited with helping avert millions of layoffs during the pandemic by deploying state aid.

Temporary Gigs

The reform deal simplifies temporary contracts and tightens punishments for employees who make improper use of them to encourage the creation of fixed jobs, the Labor Ministry said in a statement.

Diaz’s call for tougher limits to short-duration contracts and outsourcing put her at loggerheads with Economy Minister Nadia Calvino, who pushed for more moderate rules to avoid raising output costs. Business leaders, who’d complained that the original proposal would hurt the economy, said the final version consolidates the current model and maintains companies’ flexibility to adapt. 

Despite recovering most of the jobs lost during the pandemic, Spain continues to have one of Europe’s highest levels of youth unemployment. Joblessness has remained in double digits since the 1980s. 

Earlier this year, the European Commission disbursed 9 billion euros and is expected to release another 10 billion euros in the coming days.

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