Spain looks to political allies on labour reform

Two of Spain's key regional political parties said on Friday they broadly backed the jobs market overhaul proposed by the government but would play their cards close to their chest until they see the final version.

Loosening the rigid labour market is seen as vital to ensure Spain's long-term economic recovery and to ease market fears of a Greek-style debt crisis by proving Socialist Prime Minister Jose Luis Rodriquez Zapatero's unpopular government can act.

But talks between the Socialists, business leaders and unions failed to come up with a consensus draft on Thursday after two years of on-off talks and the government has decided to present a draft labour reform unilaterally.

Labour Minister Celestino Corbacho warned that although the reform is nearly ready, the prospect of a quick fix for the euro zone's highest jobless rate - 20 percent - was remote.

"No-one should expect that with this labour reform we can solve the problem of the economic crisis and unemployment tomorrow" he told reporters on Friday.

Unions, business leaders and political parties were given the draft reform on Friday, he said.

Spain's unions criticised the proposals, saying they catered to business rather than workers' rights and job growth.

"When these talks started, the aim was to stop job haemorrhaging" Ramon Gorritz, a senior official at Spain's largest union Comisiones Obreras, told reporters late on Friday.

"But this document, if approved, is about more firing and cheaper firing" he said, adding: "Regulating the labour market does not in itself create jobs."

The unions said they would make a final assessment of the draft on Tuesday, a day before it goes to the cabinet, and reiterated threats of a general strike if the measures are passed as such.

The plan is for the cabinet to approve the reform on June 16 by decree, which means it would need to be passed by parliament without amendments. Deputy Prime Minister Maria Teresa Fernandez de la Vega said they aimed for a parliament vote on June 22.

With the largest opposition Popular Party primed to vote against any Socialist proposals, the minority government will have to court regional parties like the Catalan Nationalists (CiU) to pass any legislation.

The CiU's 10 votes would be enough to give the Socialists the majority they need. Without them, they will have to muster votes from several other parties, although it wants as wide a backing as possible to give a sense of unity in adversity.

"The music the government is playing sounds good, but we want to wait and see the final draft ... and until they have closed the issue with unions it can't be negotiated," a CiU source told Reuters.

A 15 billion-euro austerity plan scraped through parliament by one vote in May after the Catalans abstained. The CiU has said it will not abstain this time, however, and will vote for or against.

Basque Nationalist Party PNV, which has conservative business roots and six seats in parliament and which has been a government ally in the past, said reform was essential and that it supported many of the measures proposed by the government.

"We've been asking for reform for three years, but it would be wrong to take advantage of the crisis to cut back on workers' rights," a source at the Basque party said.

Zapatero said on Thursday he was confident of getting support in parliament for the reforms.

He has extended the talks over and over in the hopes that the unions - the Socialists' natural partners - and employers could reach agreement, which would have made it difficult for the parliament to throw it out.

If he cannot push the reforms through his credibility will be seriously damaged. That could leave him open to a vote of no confidence which, if passed, could lead to early elections.

This scenario is seen as unlikely, however, given the overwhelming commitment of all parties to labour reform.

The reforms aim to end a rigid two-tier system that divides temporary and permanent workers to tackle unemployment, cut the cost of firing and promote youth employment.

Spanish government bond yields have surged because of worries about the government's ability to cut its deficit - 11.2 percent of GDP last year - and make the structural changes necessary to restore the economy to health.