SPAIN´S central bank chief has warned that political instability could have a negative impact on the country’s economic recovery. 

Pablo Hernández de Cos said that Spain’s leftwing government must stick with labour reform and remain focused in order to repair the economy following the pandemic. 

“In Spain, we are experiencing a political fragmentation process we are not used to, and it is important that we can deal with this situation and that it does not stop us from reaching agreements on reforms,” Mr Hernández de Cos said in an event held in Madrid by news agency Europa Press on Monday.

The bank chief, who is also a member of the European Central Bank Governing Council, has previously praised the labour market reform pushed through by the previous centre-right government in 2012.

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He believes ‘capital buffers’ helped cut costs after the financial crisis and wants to see similar support put in place to help guide Spain out of the financial losses caused by the pandemic.  

Currently there is tension between Spain’s polictal parties over whether employees should be sacked due  due to absenteeism caused by illness. 

Currently the Socialists and the radical left Podemos party, who formed a government last month, are at loggerheads with the rightwing parties who boost subcontracting. workers 

The leftwing parties also want to ensure workers cannot lose their jobs if they are absent due to illness and are calling for a priority to be given to company-specific rather than sector-wide negotiations. 

Mr Hernández de Cos argued that it would be better to focus on issues such as reducing the high proportion of people on temporary contracts — more than a quarter of the workforce, one of the highest levels in the eurozone — and cracking down on Spain’s perennially high unemployment, now roughly 14 per cent. 

In any case, he has ensured that the banking sector has shown a ‘remarkable’ resistance, supported by the improvements both in the quality of its balance sheet and in its solvency in the last decade and in the forcefulness of the economic policies applied since the beginning of the crisis.

“The crisis has only highlighted the importance of having a healthy banking sector, with sufficient buffers to absorb unexpected risks. We must ensure that the resistance of the sector is maintained with respect to the new risks that emerge”, Hernández de Cos. 

He also revealed that the European Union agreement to disburse rescue funds to member countries funded by common debt is compatible with EU treaties. 

“I have no doubt that the European agreement is perfectly compatible with the treaty,” de Cos said. 

The EU governments have agreed to allow the European Commission to raise up to 750 billion euros in capital markets and pass on the money to member states worst hit by the pandemic through payments linked to jointly agreed reform and investment plans, partly as grants and partly as loans.

The European Commission said on Friday it was confident the questioned decision would stand in the German court.

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