EU Billions Alone Won’t Transform Spain’s Economy, De Cos Says

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Spain won’t reap the full benefits of the European Union’s recovery package without sweeping measures to tackle long-standing problems with its labor market and pension system, central bank Governor Pablo Hernandez de Cos said.

In remarks accompanying the Bank of Spain’s annual report, Hernandez de Cos, who is also a European Central Bank policy maker, warned against the risk of missing a “unique opportunity” to transform the euro area’s fourth-largest economy.

The comments echo concerns among other economists that despite government reform pledges, details of the planned changes are short on specifics. Spain is set to receive 140 billion euros ($169 billion) in cheap loans and grants from the EU package, making it one of its largest recipients.

The Bank of Spain has called the country’s labor market “dysfunctional.” Even before the pandemic, Spain had one of Europe’s highest unemployment rates. Its complex labor laws have led to a boom in precarious temporary contracts. It also has the EU’s worst rate of high school drop-outs.

There’s an “urgent need to accompany the investment projects with reforms that pave the way for a more efficient economy and which, at the end of the day, are going to be absolutely key to ensure that these funds can really unleash their full benefits on the Spanish economy,” Bank of Spain chief economist Oscar Arce said in a presentation of the annual report.

Pedro Sanchez, Spain’s Socialist prime minister, says he and his ministers are negotiating the reforms with business and union leaders to ensure they won’t be overturned by the next government. That makes it premature, they say, to discuss details of the changes.

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