IMF's Strauss-Kahn: Spain should follow Europe on labour reforms

Spain's labour market is too rigid and must be reformed to match those in other parts of Europe, International Monetary Fund head Dominique Strauss-Kahn said.

"In Spain you have a lot of rigidities, the labour market doesn't work for many reasons, and I think the labour unions, the government, business - everybody understands this and knows what should be done," he told Spain TVE public television on Monday night.

"Even in good times you have a lot of people unemployed and also a lot of people on short-term or temporary contracts. All these are things which show the labour market does not work."

His comments followed an IMF report released on Monday that called for "urgent" labour and banking reforms in Spain, which is struggling to rein in its massive deficit amid fears it could follow Greece into financial crisis.

Spain's unemployment rate soared to more than 20 per cent in the first quarter, the highest in the 16-nation eurozone.

The labour market "has to be more effective, the way people are hired, or sometimes are fired, are to be done the way it is done in the rest of Europe, no more, no less," said Strauss-Kahn.

Spanish Prime Minister Josè Luis Rodriguez Zapatero in February unveiled a plan to reform the country's strict labour market rules.

The measures include allowing firms to cut costs by shortening workers' hours but without making them redundant, as Germany has done, to reduce the use of temporary contracts, promote permanent part-time job contracts and encourage the hiring of unskilled youths.

Mr Strauss-Kahn said the IMF backs the measures but added that they must be imposed immediately.