MADRID — The head of the European Central Bank said Friday that it was important for Spain to press on with structural reforms to liberalize its labor market and calm the turbulence that has engulfed its economy.
Jean-Claude Trichet said it was essential for Spain to "deepen structural reforms of the labor market."
The Spanish government has loosened hiring and firing restrictions in the job market, frozen pensions and allowed some opening up of the energy sector in a bid to boost the country's competitiveness — among the worst in the eurozone.
The ECB head said the ongoing consolidation of Spain's savings bank sector was another key factor in reducing turbulence.
"We consider it's extremely important that the deficit in Spain is fully substantiated and explained," said Trichet.
At a press conference in Madrid following a high-level seminar of the Eurosystem and Latin American central banks, Trichet said it was also important "to elevate growth potential" in Spain.
Trichet said the pension reform proposed by the government of Prime Minister Jose Luis Rodriguez Zapatero was vital.
In November, Zapatero said his government was sticking by plans to reform the pension system and would present draft legislation in the first quarter of 2011 as part of a drive to cut Spain's budget deficit.
Trichet said bank stress tests would be continued in the Euro zone countries but did not say when he thought such tests could be implemented.
"Stress tests are a very useful concept and tool that is utilized on both sides of the Atlantic and it is certainly important that they are used on a regular basis, which is something that has a global consensus," said Trichet.
He said that, while an increase in the price of oil and commodities was "a permanent issue" for all central banks in the world, he was happy with the low inflation levels maintained in the euro zone during the existence of the single European currency.
"We are proud of having delivered price stability," he said, adding that since January 1999 inflation had been kept "at less than two percent."
Trichet said the consolidated deficit in "all the euro area" was "much lower than in the number one and number two economies in the world," referring to the United States and Japan.
Herman Van Rompuy, president of the European council, met with Spain's beleaguered leader, Zapatero, late Friday to discuss the economic woes plaguing his country and the eurozone and said the prime minister "has taken the bull by the horns."
"The Spanish government has taken decisions that have required a lot of courage and bravery to help its economy," Van Rompuy said.
Zapatero said his government's efforts to fend off market turbulence had at times been like driving down "a narrow and winding mountain road, as soon as you leave one curve you find yourself facing another."
Van Rompuy said Spain should improve productivity and diversify its sources of growth to consolidate its recovery, adding that the EU should stand firm against market attacks on the Euro.
Earlier Friday, Spain's finance minister Elena Salgado said that "a financial bailout has never been on the horizon" and Zapatero's government had ruled out increasing value-added or gasoline taxes.
Salgado said there is "nothing in the economic foundations of Spain's economy that indicate that we will have to ask for external financial aid."
Speaking on Onda Cero radio Friday, Salgado said austerity measures announced last week, including raising taxes on tobacco and selling off 30 percent of the national lottery, would help reduce Spain's deficit.
She also said that selling off a minority stake in airports authority AENA could raise €8 billion ($10.56 billion).