MADRID: Spain's government, unions and business leaders signed a "grand social pact" Wednesday on sweeping reforms to revive the economy and cut a sky-high jobless rate.
The deal is critical to Spain's campaign to convince the markets that it can push through difficult labour reforms so as to speed up the economy, cut spending, and finance the debt.
Lurking in the minds of investors is the fear that Spain may fall into the debt quagmire that swamped Ireland and Greece, forcing it to request a bailout from the European Union and IMF.
"This agreement has three objectives: growth, jobs and the sustainability of our public finances," Prime Minister Jose Luis Rodriguez Zapatero said in a speech after the signing ceremony.
The central plank of the deal was an agreement reached Friday to rise the retirement age to 67 from 65 by 2027.
The retirement deal includes exceptions, for example allowing people with dangerous or arduous jobs to retire before 67, as demanded by Spain's two biggest unions, the UGT and the CCOO.
But it has nevertheless been welcomed by markets, nervous that Social Security payments could spiral out of control in the decades to come as pensioner numbers expand.
Unions had threatened to call a general strike if the government pushed ahead with a reform of the pension system without taking their demands into account.
In September unions staged the first general strike since Zapatero's Socialist government came to power in 2004, furious over labour law reforms making it easier to fire workers.
The government is determined to deepen those reforms, however, to cut a jobless rate that hit a 13-year record of 20.33 percent at the end of 2010, the highest in the industrialised world.
The pact, which was finalised on Tuesday, also introduces a new subsidy of 400 euros (550 dollars) to jobless workers whose benefits have run out and who are in training.
New incentives for companies to hire unemployed youths and an agreement on the need to reform Spain's collective bargaining system, which ensures joint wage rises across sectors and industries are also in the pact.
The Spanish economy, the European Union's fifth biggest, slumped into recession during the second half of 2008, reeling under the twin blows of a global financial meltdown and the collapse of a labour-intensive construction boom
It emerged with tepid growth of 0.1 percent in the first quarter of 2010 and 0.2 percent in the second but then stalled with zero growth in the third. The government estimates it rose by about 0.2 percent in the fourth quarter.
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