Embattled Zapatero faces growing union protests (News Feature)

By Sinikka Tarvainen Jun 8, 2010, 13:20 GMT

Madrid - 'The tougher things appear, the more strength seems to emerge inside us,' Spanish Prime Minister Jose Luis Rodriguez Zapatero said recently.

He was describing the achievements of mountain climber Edurne Pasaban, but his words sounded to many like a somewhat desperate attempt to cheer himself up.

Six years after Zapatero took power in 2004, his government threatens to become engulfed by Spain's economic morass as calls mount for a cabinet reshuffle or early elections.

On Tuesday, the 49-year-old premier faced his first major labour unrest as public employees began a 24-hour strike against wage cuts. The protest was widely seen as a prelude for an eventual general strike.

In its initial attempts to remain on good terms with trade unions, the Socialist government had shunned austerity and structural measures it now describes as vital, and which many financial analysts regard as being long overdue.

European Union pressure is mounting on the government to loosen protection for workers and to reform the pension system even further than it is already planning.

Should Zapatero fail to calm markets fearing a Greek-style economic meltdown in Spain, he could eventually go down in history as a financially inept premier who contributed to weakening the entire euro region, critics say.

Trade unions, on the other hand, accuse the government of short-sightedly focusing on cutting costs instead of revitalizing the economy.

'Cutting the salaries of the weakest (members of society) is not a solution to the crisis, because it will reduce consumption,' said Enrique Fossoul from the trade union confederation CCOO.

During his first four-year term in office, Zapatero became known as a social reformer who defied Spain's Catholic Church in pushing through bold reforms such as same-sex marriage and fast-track divorce.

His second term in office, however, has been overshadowed by what was widely perceived as his erratic and inefficient handling of Spain's deepest recession in more than 50 years.

The bursting of Spain's property bubble aggravated the effects of the global crisis, pushing unemployment to 20 per cent - the highest in Western Europe - and public deficit to 11.2 per cent, the third-largest in the euro zone.

Analysts are also concerned about Spain's high private debt which amounts to about 180 per cent of gross domestic product.

The government finally announced tough budget cuts worth 15 billion euros (18 billion dollars), including the first public wage cuts in 30 years and freezing pension benefits, in June.

Abandoned by its parliamentary allies, the government pushed the package through with a majority of just a single vote, failing to calm markets while the risk premium on Spanish debt kept rising.

Tuesday's strike protested against public wage cuts, which are to average 5 per cent this year.

An even bigger test for the government, however, will be a reform to dismantle some of Europe's strongest worker protection in an attempt to make the labour market more flexible and to reduce the use of temporary work contracts.

Last-ditch attempts by unions and employers to reach an agreement were expected to fail, in which case the government intends to impose the reform by decree, and unions are threatening to respond with a general strike.

At least 60 per cent of Spaniards distrust Zapatero's economic policies according to polls, which would give the conservative opposition a comfortable lead if elections were held now.

There was a sense of there being 'no captain in the cockpit,' an unidentified legislator from Zapatero's own Socialist Party told the daily El Pais.

The premier's hallmark boyish smile now fades occasionally, and the government's earlier optimism has given way to gloomier economic forecasts.

The economy emerged from its two-year recession in the first quarter, but the government's lack of support could erode investor and consumer confidence, according to financial analysts.

The austerity measures could also slow down growth, with for instance the International Monetary Fund not expecting the economy to reach a growth level of 2 per cent until 2016.

The government has vowed to serve a full term until 2012, but an eventual failure to win parliamentary support for next year's budget could well force an early election in 2011, the daily El Mundo said.