The public sector reforms that Prime Minister Rajoy introduced yesterday did not meet expectations. The IMF criticized his weak labor reforms, too, recommending that Spain follow what the experts have advised for its national social security system and issueing a warning that the Bank of Spain needs more capital and provisions. The comments were a wake up call for Rajoy's government. But it gets more interesting. The IMF also said that Spain should think about asking the ECB to buy Spanish debt.
This is nearly enough to put Spain on the brink of a bailout. The IMF has unveiled the shortcomings of the labor reforms, which stem from wanting to limit financial sector aid to 40 billion euros and ending labor reforms. Meanwhile, 6.2 unemployed workers are waiting on the recovery to get here. The IMF does not agree and warns, as did the EU, that it's necessary to intensify the changes Spain has already made to slow down job losses and do away with redundancy in the labor market.
To counter the the effects of these critiques, Rajoy offered up a public sector reform that does have some positive aspects: general modernizations, a smaller central administration and leaving many responsibilities to the regional governments.
The national government can't interfere with regional government administrations, but the long span of time between early talks of reforms and the actual implementation could have been used to smooth over differences with regional governments in order to avoid disputes in Spain's constitutional court.
