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Spain adopts new labor market reforms for youths
Spanish Cabinet OKs more job reforms to tackle 21 percent jobless rate
By The Associated Press

MADRID (AP) ' The Spanish government has approved a new series of labor market reforms designed to encourage firms to hire new workers, especially young people facing a jobless rate of 45 percent.

The green light came at a rare August Cabinet meeting.

One change amounts to an about-face from a measure passed last year, which gave companies tax breaks to transform temporary employees into full ones with open-ended contracts. Temporary workers make up nearly a third of Spain's work force and were the first to be let go when Spain's economy tanked in 2008.

The new change essentially tolerates temporary contracts.

The government also raised the eligibility age for apprentice contracts that give companies tax breaks, and broadened the power of a government agency that helps companies make severance payments for layoffs.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

MADRID (AP) ' Spain's main political powers have agreed to amend the constitution to make the government legally obliged to keep its deficit low, an effort to reassure markets that the country will keep its troubled finances under control and not need a bailout.

The ruling Socialists and the center-right Popular Party cut a deal in the early hours of Friday ' after frantic negotiations ' to propose a law under which, starting in 2020, the national deficit cannot surpass 0.4 percent of GDP.

That threshold can be surpassed only in cases of natural disaster, economic recession or other extraordinary circumstances that will have to be declared formally by a vote in Parliament.

The Constitutional amendment is expected to be voted on Sept. 2 in the lower house of Parliament, while the actual law is due to be passed by the end of June of next year.

Alfredo Perez Rubalcaba, the Socialist candidate for prime minister in general elections due in November, praised the accord as an essential tool to restore confidence in Spain and the eurozone after a turbulent month on bond and stock markets. He also said the deal allows for essential wiggle room.

"We wanted stability with flexibility to let Spain react to situations that we cannot now predict," Perez Rubalcaba told reporters.

"It is a good agreement from an economic, social and political standpoint," added Soraya Saenz de Santamaria, who co-led the negotiations for the Popular Party.

The government is in a rush to pass the constitutional amendment, both to shore up market confidence and because Parliament will break up in the end of September ahed of general elections on Nov. 20.

Spain insists it is not acting under pressure from European authorities, even though French President Nicolas Sarkozy and German Chancellor Angela Merkel last week called for all eurozone nations to enact constitutional amendments requiring balanced budgets.

Spain is struggling to recover from nearly two years of recession prompted largely by the collapse of a real estate bubble. The jobless rate is near 21 percent and economic growth remains weak.

Concerns that Spain could not handle its debt saw its borrowing rates rise this year to the point that the European Central Bank was forced to intervene in markets in August to buy bonds and bring the rates back down. Yields indicate of how much faith investors have in a country's debt ' higher yields show greater mistrust.

In a preface to their accord, the two main parties wrote that the global economic crisis "has only made it more appropriate to incorporate the principle (of budgetary discipline) into our Constitution so as to boost confidence in the stability of the Spanish economy over the medium and long term."

The 0.4 percent deficit limit breaks down into 0.26 percent for the central government and 0.14 percent for Spain's regional governments, many of which are struggling with high debt. Local governments, many of them also burdened by heavy borrowings, will be required to balance their budgets.

The 0.4 percent limit will be up for review in 2015 and 2018.

The country as a whole aims to bring its deficit down to 6 percent of GDP this year from 9.2 percent in 2010, with the ultimate goal of hitting the EU limit of 3 percent in 2013.

An amendment to the constitution had to be rapid since Parliament dissolves on Sept. 27 ahead of the Nov. 20 early elections that Prime Minister Jose Luis Rodriguez Zapatero has called.

Zapatero's proposal to change the Constitution was not without controversy. Some officials in his own party complained that such a move made the Socialist party seem too economically conservative and beholden to markets and authorities in Brussels.

Friday was the deadline to get a proposed amendment registered in Parliament so it can be voted on next Friday. It goes to the Senate the following week. In both chambers it needs a three-fifths majority. But this is widely expected to be attained because both main parties support the change.

For the amendment to be approved before this legislature breaks up ahead of the elections, the Senate must pass it by the second week of September.

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