By Sonya Dowsett and Paul Taylor
MADRID/PARIS, June 16 (Reuters) - Spain and France announced politically unpopular labour and pension reforms on Wednesday in the face of financial market pressure on euro zone states to clean up their finances.
Pressure grew for European regulators to publish results of stress tests on individual banks to restore market confidence and overcome a partial freeze in inter-bank lending. Such tests show banks' ability to withstand liquidity problems.
On the eve of a European Union summit in Brussels that was expected to approve tougher fiscal rules to prevent a repetition of the Greek debt crisis, the European Commission and the International Monetary Fund denied Spain was about to seek financial help.
The risk premium demanded by investors to hold Spanish debt rather than benchmark German bonds rose to a euro lifetime high of 223 basis points because of bailout rumours before a closely watched Spanish bond auction on Thursday.
Spain won praise from German Chancellor Angela Merkel after the cabinet in Madrid approved a decree to overhaul rigid hire-and-fire laws intended to restore economic competitiveness.
'Spain has made an important contribution to enhancing the competitiveness of the whole of Europe. Our continent as a whole must be regarded as competitive,' she said in Brussels. 'I think we should encourage Spain that this is the right way.'
EU leaders denied a report in the Spanish business newspaper El Economista that the United States, the EU and the IMF were preparing a 250-billion-euro ($308.6-billion) credit line for Spain.
'We don't see any specific reason today to be worried about Spain and there is no Spanish issue on the agenda of the Council,' a source in French President Nicolas Sarkozy's office said.
French and German officials said Spain's fiscal problems were not on the agenda of Thursday's one-day EU summit on fiscal and economic reforms and Portugal's prime minister said his country did not need financial help.
STEPS ON REFORMS
Like Spain, France took a step on reforms, announcing plans to raise the retirement age to 62 from 60 and increase taxes on the rich to balance strained pension accounts by 2018.
Both are the sort of structural reforms recommended by the European Commission, the EU executive, and by economists to adapt European economies to global competition and an ageing population, and to make public finances more sustainable.
They face opposition from trade unions which see them as an assault on workers' rights and plan protest strikes.
In Greece, the Athens metro was closed by a one-day strike in protest against lay-offs, austerity measures and wage cuts. The labour union of the tourist industry, which accounts for almost one-fifth of the economy, held a four-hour stoppage.
Financial market analysts described the Spanish and French reforms as too timid compared with efforts elsewhere in Europe.
'First of all, the reform has not yet been ratified ... and it could yet be changed or emptied of meaning. Above all, the real problem is that the new French retirement (forecasts) are based on over-optimistic scenarios,' said Marc Touati, director of research at brokerage Global Equities.
Spain's labour reform, imposed by decree after talks with unions and employers ended without agreement, will cut severance payments for most workers, simplify contracts, promote youth employment and allow short-time working at firms in difficulty. Parliament is due to ratify the decree on June 22.
STRESS TESTS
Pressure is also rising for European regulators to publish results of stress tests on individual banks.
EU sources said euro zone officials held a conference call on the issue after the Bank of Spain said it would publish results of tests on its country's banks soon.
A German Finance Ministry spokeswoman said Berlin was coordinating with EU partners on the publication of stress tests, which Germany, France and the European Central Bank have so far opposed.
'There are more and more people in governments in favour of transparent stress tests of European banks. We need more transparency. Europe is full of good banks,' Finnish Finance Minister Jyrki Katainen said.
Yves Mersch, a member of the ECB's Governing Council, said a wider publication of the tests could help improve the crisis of confidence in Europe.
'In an environment where Europe has maybe less a problem of economic fundamentals than of confidence, transparency is an essential element,' he said in Luxembourg.
European finance ministers agreed a $750-billion-euro plan on May 10 to contain the euro zone crisis, after approving a 110-billion-euro aid mechanism for Greece.
IMF chief Dominique Strauss-Kahn urged Europe to use the European Financial Stability Facility to generate more economic growth, suggesting it could be used to boost economic output.
'The real question is growth and if institutions are created they should serve a purpose and not just a form of security for times of need,' he told a conference in Paris. ($1=.8101 Euro) Keywords: EUROZONE/ (paul.taylor@thomsonreuters.com; +336 46487047; Reuters Messaging: paul.taylor.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
MADRID/PARIS, June 16 (Reuters) - Spain and France announced politically unpopular labour and pension reforms on Wednesday in the face of financial market pressure on euro zone states to clean up their finances.
Pressure grew for European regulators to publish results of stress tests on individual banks to restore market confidence and overcome a partial freeze in inter-bank lending. Such tests show banks' ability to withstand liquidity problems.
On the eve of a European Union summit in Brussels that was expected to approve tougher fiscal rules to prevent a repetition of the Greek debt crisis, the European Commission and the International Monetary Fund denied Spain was about to seek financial help.
The risk premium demanded by investors to hold Spanish debt rather than benchmark German bonds rose to a euro lifetime high of 223 basis points because of bailout rumours before a closely watched Spanish bond auction on Thursday.
Spain won praise from German Chancellor Angela Merkel after the cabinet in Madrid approved a decree to overhaul rigid hire-and-fire laws intended to restore economic competitiveness.
'Spain has made an important contribution to enhancing the competitiveness of the whole of Europe. Our continent as a whole must be regarded as competitive,' she said in Brussels. 'I think we should encourage Spain that this is the right way.'
EU leaders denied a report in the Spanish business newspaper El Economista that the United States, the EU and the IMF were preparing a 250-billion-euro ($308.6-billion) credit line for Spain.
'We don't see any specific reason today to be worried about Spain and there is no Spanish issue on the agenda of the Council,' a source in French President Nicolas Sarkozy's office said.
French and German officials said Spain's fiscal problems were not on the agenda of Thursday's one-day EU summit on fiscal and economic reforms and Portugal's prime minister said his country did not need financial help.
STEPS ON REFORMS
Like Spain, France took a step on reforms, announcing plans to raise the retirement age to 62 from 60 and increase taxes on the rich to balance strained pension accounts by 2018.
Both are the sort of structural reforms recommended by the European Commission, the EU executive, and by economists to adapt European economies to global competition and an ageing population, and to make public finances more sustainable.
They face opposition from trade unions which see them as an assault on workers' rights and plan protest strikes.
In Greece, the Athens metro was closed by a one-day strike in protest against lay-offs, austerity measures and wage cuts. The labour union of the tourist industry, which accounts for almost one-fifth of the economy, held a four-hour stoppage.
Financial market analysts described the Spanish and French reforms as too timid compared with efforts elsewhere in Europe.
'First of all, the reform has not yet been ratified ... and it could yet be changed or emptied of meaning. Above all, the real problem is that the new French retirement (forecasts) are based on over-optimistic scenarios,' said Marc Touati, director of research at brokerage Global Equities.
Spain's labour reform, imposed by decree after talks with unions and employers ended without agreement, will cut severance payments for most workers, simplify contracts, promote youth employment and allow short-time working at firms in difficulty. Parliament is due to ratify the decree on June 22.
STRESS TESTS
Pressure is also rising for European regulators to publish results of stress tests on individual banks.
EU sources said euro zone officials held a conference call on the issue after the Bank of Spain said it would publish results of tests on its country's banks soon.
A German Finance Ministry spokeswoman said Berlin was coordinating with EU partners on the publication of stress tests, which Germany, France and the European Central Bank have so far opposed.
'There are more and more people in governments in favour of transparent stress tests of European banks. We need more transparency. Europe is full of good banks,' Finnish Finance Minister Jyrki Katainen said.
Yves Mersch, a member of the ECB's Governing Council, said a wider publication of the tests could help improve the crisis of confidence in Europe.
'In an environment where Europe has maybe less a problem of economic fundamentals than of confidence, transparency is an essential element,' he said in Luxembourg.
European finance ministers agreed a $750-billion-euro plan on May 10 to contain the euro zone crisis, after approving a 110-billion-euro aid mechanism for Greece.
IMF chief Dominique Strauss-Kahn urged Europe to use the European Financial Stability Facility to generate more economic growth, suggesting it could be used to boost economic output.
'The real question is growth and if institutions are created they should serve a purpose and not just a form of security for times of need,' he told a conference in Paris. ($1=.8101 Euro) Keywords: EUROZONE/ (paul.taylor@thomsonreuters.com; +336 46487047; Reuters Messaging: paul.taylor.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.