Spain PM says labor reform will create jobs

Public sector workers take part in a demonstration in downtown Oviedo, northern Spanish region of Asturias June 8, 2010.

MADRID (Reuters) - A draft labor reform package due to be approved by Spain's government on Wednesday will help generate jobs and boost confidence in a struggling economy, Prime Minister Jose Luis Rodriguez Zapatero said on Saturday.

The government presented unions and business leaders with the package on Friday after failing to reach a consensus on reform in long-running three-way talks.

"It will ease job creation, employment stability and will generate confidence in the Spanish economy over the medium term," Zapatero told reporters at a news conference.

The proposal drawn up by the government maintains workers' rights while giving employers flexibility to adapt to difficult circumstances, he said.

Economists see reform of Spain's inflexible labor laws as a crucial step toward restoring the country's productivity and putting its economy, which suffered acutely from the bursting of a real estate bubble, back on a vigorous growth path.

Spain's unemployment is the highest in the eurozone at 20 percent.

After European countries were forced to come to the rescue of Greece last month, financial markets have shifted their attention to other ailing euro zone economies, with both Spain and Portugal under pressure to rein in their swollen deficits.

Reflecting the jitters, Madrid was forced to deny on Friday that it planned to seek aid from the European Union after German newspaper FT Deutschland reported that Brussels was preparing to activate a package for Spain.

Unions have criticized Zapatero's labor proposals, saying they cater to business rather than workers. They have threatened a general strike if the measures are passed in a parliamentary vote, which the government hopes to hold on June 22.

Spanish business organization CEOE has also slammed the planned reform, saying on Saturday it would increase costs for employers and make it too difficult to hire temporary workers.

"CEOE believes the government's proposal does not contribute to the urgent necessity to modernize the labor market and is not enough for the country's needs," it said in a statement.

Spanish media was supportive of the package, with papers from the center-right El Mundo to the left-leaning pro-government El Pais stressing the importance of reform in their editorials on Saturday.

"Given that a general strike called by the unions is almost inevitable, the government should push for labor reform which will help create growth in the long term," said El Mundo, usually a strong critic of Zapatero's Socialist government.

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