Spain is broadly on track to meet its deficit cutting target next year as it attempts to stabilise the country’s finances according to a new report from the Organisation of Economic Co-operation and Development.
But the OECD said if there is weaker than expected growth, the Madrid government will have to take additional measures, such as raising taxes even higher.
OECD economist Pierre Beynet explained that time is of the essence: “Spain is less indebted than other Western countries. But if the deficit remains at the current high level for a prolonged period of time, then things will change rapidly. That’s why Spain needs to consolidate its public finances fast.”
The OECD says Spain’s economy which will remain weak for years but it can be boosted by reforms to pensions and the banking sector.
It should be boosted by essential reforms to pensions including an increase in the retirement age to 67 from 65.
The report – which is a regular assessment of the country’s progress – said the Spanish banking sector has withstood the crisis well, and has emerged from it with abundant capital thanks to prudent supervision and provision buffers, though credit rating agencies have said the banks do have bigger debts than they have acknowledged
Labour market reform is vital to rebalancing Spain’s economy the OECD said.
It stressed those efforts must be broadened and deepened and include changes to the collective bargaining system, where wage increases are set across whole sectors or companies.
Unemployment would remain high, it said, though should begin to fall significantly in 2011. Spain’s unemployment rate was 19.8 percent in the third quarter of the year, around twice the euro zone average.