Spain govt says confident can ride out EU storm

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 euros EU/IMF rescue package for Greece would not stop a debt crisis spreading to other weak euro zone members. Spanish stocks closed more than 5 percent lower.

Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed as "complete madness" a market rumour that his country would ask for 280 billion euros in aid from the euro zone.

The Spanish government has promised 50 billion euros of budget cuts to 2013 to bring the country's deficit down to 3 percent of GDP from 11.2 percent 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.

KEY LABOUR REFORM

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 eurozone running at around 20 percent, 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.

Spain's economic challenges have mounted as the country has still not rebounded from recession - one of the few in Europe not to do so - after its worst downturn in decades as a property boom went bust.

The country has had seven consecutive quarters of negative growth.

De la Vega said the economy was on the mend, although she predicted that only at the end of this year would things turn positive.

"We are going to return to a positive situation from a negative one," she said. "We are already seeing positive signs. We hope that by end of year...slowly growth will return."

"We still have a difficult road ahead," she added.

Turning to the euro currency, she said Spain had been working to strengthen the euro during the European Union presidency which it currently holds.