Europe's labour market reforms take shape If the car industry is a barometer for measuring Europe's progress on economic reform, then Spain is leading the pack. Nissan of Japan said last week it planned to invest €130m at its Barcelona plant to produce up to 80,000 passenger cars a year from 2014. Critical to Nissan's decision was an agreement struck with Spanish trade unions to limit wage increases and recast working conditions in return for hiring more employees and boosting output. Nissan is no isolated example. Ford, Renault and Volkswagen are expanding production to take advantage of lower labour costs that make Spain an increasingly competitive location for manufacturing and exporting cars. Across the 17-nation eurozone, governments, businesses and unions are making efforts - some more convincingly than others - to restructure labour relations, open up product markets, redesign pension systems, raise education standards and encourage technological innovation. If the eurozone is to survive and prosper, so the thinking goes, the solution lies not just in more rigorous fiscal discipline and tighter bank supervision but in structural reforms aimed at boosting long-term growth rates. Even the thousands of extra jobs created by the new investments in Spain's car industry will not make much of a dent in the national unemployment rate of 26 per cent. But they are a sign that the Spanish economy, laid low by a construction and property boom that felled its banks and drove sovereign debt yields to perilous highs, is adjusting at a remarkably fast pace. Much of this stems from a 2012 labour market reform that gave companies the upper hand in setting wages by revising a collective bargaining system based on national, regional and sectoral agreements between managements and unions. Spanish productivity is up 11 per cent since mid-2008, exports are at record levels and a current account once redder than a vintage Rioja is heading into surplus. Part of this success is down to a sharp squeeze on imports that will not last once Spain returns to economic growth. Still, it is small wonder that Angela Merkel, Germany's chancellor, lavished praise on Spain last Monday when she hosted Mariano Rajoy, prime minister, in Berlin. Ms Merkel likes to sermonise on the theme of "economic homework" - the duty of governments, companies and workforces to raise competitiveness, accelerate innovation and banish the spectre of European decline. Spain's reforms are exactly what she has in mind. Similar progress is visible in Ireland and Portugal and, to a lesser extent, in Greece and Italy. In France, where business competitiveness has steadily eroded since the euro's launch in 1999, employers and unions reached a landmark deal last month on labour market reform. Although the French jobs market will remain one of the most heavily regulated in Europe, it was the first such agreement in decades and signalled that the anti-business rhetoric of the Socialist government elected last year is giving way to a more reformist vision. More worrisome, from the point of view of the European Central Bank, European Commission and German government, are the prospects for reform in Italy. The Italian national election of February 24-25 risks producing a slim parliamentary majority for a centre-left coalition government beset by tensions between reform-averse leftists and reform-friendly centrists led by Mario Monti, the outgoing prime minister. It is hard to see such a coalition persuading Confindustria, Italy's employers" association, and the CGIL, the largest trade union, to cut a deal on labour market reform - especially since the Democratic party, the likely election winner, is not itself convinced of the need for radical change. Economic reform does not, however, begin and end with the labour market. In a penetrating report published in December, experts at the ECB and national central banks make the point that faster economic growth and rising exports also depend on gains in what they call "non-price competitiveness." By this they mean product quality, technological advances, industry specialisation and a sound business environment. The ECB is too polite to put it like this, but the report's underlying message is that the road to European prosperity does not have to pass exclusively through wage cuts and easier ways to fire workers.