Reform fatigue threatens green shoots, says ECB's Paramo

MADRID (Reuters) - Reform of the global financial system has become bogged down as fears subside over its potential collapse, however policymakers taking their foot off the pedal threatens recovery, a leading ECB official said.

ECB Executive Board member Jose Manuel Gonzalez-Paramo also told Spanish newspaper El Pais some European Union countries should hopefully see a return to growth from mid-2010.

"One can perceive a certain tiredness of action in recent months, which has important risks," Gonzalez-Paramo told the Sunday edition of El Pais. "We should not distract ourselves with talk of green shoots because these will only be consolidated with reforms."

Gonzalez-Paramo said Spain's recovery would be slower than other EU members because of the weight of its indebtedness and the its now-moribund construction sector, but he again stated forecasting when a recovery might arrive was difficult.

"Some countries will have positive growth from June 2010, but everything is surrounded in great uncertainty," he said.

Earlier this week the Spaniard said he saw high uncertainty around forecasts by multilateral agencies and ECB staff that some euro zone members would definitely return to positive growth in the second half of 2010, when asked if euro zone economic recovery could be delayed.

He told El Pais Spain's recovery would be more precarious without labor reform, in particular an end to the division between workers on temporary and fixed contracts.

"If the division ... is maintained what will happen is that those in the driving seat will be the new temporaries, many of them without adequate qualifications for this new model (for an innovative and dynamic economy)."

He added that the Socialist government should not delay tough decisions simply because it did not have agreement from all sides.

It is in talks with unions and employer organizations to reform a market in which 18.7 percent of the workforce is unemployed, according to Eurostat figures.

"The government has a mandate from the ballot box to do what is necessary for growth and to maximize wellbeing. If this is accompanied by a social dialogue, so much the better, but the lack of an agreement does not exempt it from the responsibility to govern."

The cost of making a long-term employee redundant in Spain is among the highest in the world, according to the OECD, which gives a disincentive to offering fixed contracts.

(Reporting by Ben Harding; Editing by David Holmes)