By Paul Day
MADRID (Reuters) - The deadline for a deal on crucial labor market reforms in Spain between the government, unions and business representatives has been extended for a week from the end of the month, the Labour Ministry said on Saturday.
The government had threatened to push through the reforms by passing a bill unilaterally if no three-way agreement was reached by May 31, while the two largest trade unions had warned they would call a general strike in response.
Economists say reforms to streamline the labor market are vital to overhaul Spain's uncompetitive economy and avoid a Greek-style debt crisis. Credit ratings agency Fitch downgraded Spain's public debt to AA+ from AAA on Friday.
Because the Spanish economy is far bigger than that of Greece, a crisis there would have far more serious implications for the 16-nation euro zone and global growth.
A Spanish Labour Ministry spokesman told Reuters the deadline for a labor market reform deal had been extended for one week from May 31.
"Next week will be definitive to see if there is a possibility of an agreement or not," Labour Minister Celestino Corbacho was quoted by EFE news agency as saying on the sidelines of a conference in Barcelona.
Spain has one of the highest levels of unemployment in the European Union after the collapse of the housing market and sliding consumer spending put millions out of work in the construction and service industries.
Economists blame the two-tiered labor market, which protects permanent contract holders with massive severance pay guarantees while ignoring temporary contract holders, for an inflexible and unproductive work force.
ECONOMIC DOWNTURN
Fitch ratings agency -- which linked the downgrade to record levels of household and corporate debt in Spain, as well as mounting public debt -- said the system added to unemployment levels.
"The high proportion of temporary employment contracts makes it easier for companies to adjust to the economic downturn by shedding staff rather than reducing wages," Fitch said.
The trilateral talks to reform the system have previously stumbled over conflicting interests between Spain's recession-hit companies, which want more flexible hiring and firing laws, and the unions, which say they will not make lay-offs cheaper.
The reform talks are continuing this weekend, but comments made by the participating heads of the main unions and business representatives suggest a deal could still be some way off.
Threats by the two largest unions Comisiones Obreras (CCOO) and the UGT they would call a general strike if the government pushed through reforms were met with scorn by one of the heads of the business group CEOE Jose Luis Feito on Friday.
"It's like a child threatening to hurt his mother by not eating. These kinds of reactions are infantile, immature," he said on the sidelines of the closed-door talks.
Head of the UGT Candido Mendez was equally dismissive of Feito.
"He's acting like a hitman trying to undermine these talks and is making the debate more difficult," Mendez told journalists.
Socialist Prime Minister Jose Luis Rodriguez Zapatero's government on Thursday won passage of a 15 billion euro ($18.4 billion) austerity package by a single vote in parliament.
(Reporting by Paul Day; Editing by Charles Dick)
