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'Deeper reforms needed in Spain to seal long-term economic recovery'

AFP · 16 Oct 2015, 09:16

Published: 16 Oct 2015 09:16 GMT+02:00

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With the economy growing again after a double recession, Spain's government is claiming victory over the crisis. But Luis Garicano, a professor at the London School of Economics, told AFP in an interview on Thursday that deeper reforms are needed.

"The patient has been stabilised but really the long-term recovery has not been achieved at all," he said separately, in a debate in Madrid organised by the Financial Times.

Garicano, 48, was taken on by the centrist party Ciudadanos, a key rival of the governing Popular Party (PP) in the December 20th election, to draw up its economic programme.

Ciudadanos has been drawing voters away from both the PP and the main opposition Socialists and polls show it could play kingmaker in what is expected to be a close-run election.

Prime Minister Mariano Rajoy says his labour reform making it easier for firms to hire and fire workers is partly to thank for hauling Spain out of the crisis.

But the unemployment rate is still extremely high at over 22 percent.    

Garicano said a deeper, fairer labour reform was needed.

There is "a very protected core of insiders" and an "extremely unprotected" outer layer of largely young and female workers, he told AFP, switching between English, Spanish and French.

"They don't have prospects of starting a family or getting a house. You can't get a loan if you are on these temporary contracts", or even rent a property.

'Single contract'

Garicano said there are 47 different types of contract in Spain. "You can keep rotating people between different types of contract. The only thing you cannot do is to make them permanent, because the core system is so rigid" that firing them would be too hard, he said.

He wants to eliminate all temporary contracts and proposes a "single contract" system -- a model developed by the French economists Olivier Blanchard and Jean Tirole. In this model, the termination payment increases in line with time spent in the post.

Garicano says the idea has won the backing of another prominent French economist, Thomas Piketty, who serves as an economic adviser to Podemos, Ciudadanos' left-wing Spanish rivals.

"This is important for us in showing that were are not anti-worker," Garicano said.

With the PP and Socialists deadlocked in opinion polls, Ciudadanos has been the only party gaining much support recently, jostling for third place with Podemos.

With voters naming corruption as their second-biggest concern after unemployment, Ciudadanos also wants to clean up Spanish institutions.    

Garicano said judges, economic regulators and university rectors were often named based on family, friendships or political ties.

"We want to break those crony networks."    

Many of the people appointed to the market and competition regulation commission which supervises all sectors of the economy, from electricity to high-speed trains, "have no experience whatsoever in regulation or competition. Basically they are there to receive orders from the government," he said.

'Desire for change in Spain'

Spain's education system is ranked one of the poorest in Europe by international studies.

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Ciudadanos proposes to give schools and universities power to recruit staff and fix their salaries, and to make their funding subject to graduates finding suitable work.

"If a university is generating entire classes of waiters with a law diploma or an economics diploma, then financing should not be the same as for a university which is actually giving these people the skills to succeed," Garicano said.

His ideas were widely scorned when they first appeared in his blog and his 2014 book "The Spanish Dilemma".

Now he reckons they are gaining traction.  

"The consensus among Spanish analysts is very broad on the labour market, on productivity, on corruption and on education," he told AFP.

"I feel a real desire for change in Spain."

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