Spain PM mulls reshuffle to calm markets - media

Forexyard (Link) - Reuters: Judy MacInnes & Manuel Ruiz (June 21, 2010)

Spanish Prime Minister Jose Luis Rodriguez Zapatero is considering a cabinet reshuffle following a parliamentary vote on labour market reform, media reported, with his economy and labour ministers possible casualties.

However, a source familiar with the cabinet process questioned the logic of any imminent changes so soon after the IMF had backed the Socialist government�s policies, despite concerns about Spain�s long-term solvency.

La Ser radio said on Monday that Zapatero was mulling a reshuffle to restore financial markets� confidence in his minority government and reassure them that Spain does not need a Greek-style bailout.

Various weekend press reports, citing unnamed sources, said Zapatero could announce changes to his cabinet as early as the next few days, once parliament has ratified on Tuesday the labour reforms aimed at restoring economic health.

El Mundo, which is close to the opposition Popular Party, cited sources on Sunday as saying Economy Minister Elena Salgado and Labour Minister Celestino Corbacho could be replaced.

Both have been in the firing line in the past six weeks as Spain has pushed through austerity measures and launched the labour reforms to make the economy more competitive.

Former NATO general secretary and EU foreign affairs head Javier Solana could join the cabinet to boost Spain�s credibility overseas, El Mundo�s sources said. However, they did not specify a particular post for Solana, who is now teaching at a business school.

But the source familiar with the cabinet process asked why Zapatero should move so soon after International Monetary Fund Managing Director Dominique Strauss-Kahn gave the Spanish government a vote of confidence on Friday. �I would seriously question if now is the right time to remodel the government if concerns about Spain�s financial health have eased ... A reshuffle would spark fresh uncertainty. Why destabilise the situation now?� the source told Reuters.

�What�s more, the criticism has not been directed at specific ministers, but more at top government,� the source said.

Spanish bonds have rallied since late last week as immediate pressures over Spain�s fiscal health eased after a successful debt auction ensured the country had enough funds to pay 24 billion euros of repayment in July.

The 10 year Spanish/German yield spread narrowed to 171 basis points early on Monday from around 190 basis points at Friday�s settlement close.

With key events coming up such as the Catalan local elections in the autumn and municipal elections next spring, it would be better to take time to consider the pros and cons of a cabinet reshuffle, the source said.