Spain agrees urgent debate on budget cap

30th August 2011, Comments 0 comments

Spanish lawmakers voted overwhelmingly Tuesday to launch an urgent debate on a hotly protested reform of the constitution to cap future budget deficits.

The crushing vote, with 319 in favour and only 17 against, seemed to all but guarantee it will get the three-fifths minimum support required to change Spain's constitution.

The ruling Socialist party and main opposition conservative Popular Party bridged bitter rivalry to back the proposed reform, an unexpected accord ahead of November 20 general elections.

Under the proposed reform, the broad principles of a balanced long-term budget are to be enshrined in the constitution.

It says the new deficit limit can be breached only in times of natural disaster, recession, or extraordinary emergencies and even then only with approval of the lower house.

An accompanying law to be enacted by June 30 next year would set the actual figure for the structural or long-term annual public deficit -- 0.4 percent of gross domestic product (GDP) from 2020.

"We have to take a coherent and forceful decision to strengthen our country's solvency," said the Socialists' parliamentary spokesman Jose Antonio Alonso.

Spain's borrowing costs on the debt markets were too high considering its economic strengths, he said.

"There is no better way to dispel uncertainties than to elevate the principle of budget stability to the level of constitutional mandate so as to consolidate in the world a clear reality: we are a reliable country in the payment of our debts and there should be no doubt about it."

The reform -- only the second change to the constitution since it was drawn up in 1978 three years after General Francisco Franco's death -- could clear the lower house by Friday.

It would then go to the upper house Senate next week.

Most smaller parties voted against allowing a fast-track debate on the reform.

"We are substituting the sovereignty of citizens with the sovereignty of the markets," Gaspar Llamazares, parliamentary spokesman for the United Left coalition, complained to lawmakers.

Rebel lawmakers can still force a referendum on the law if they can muster support from 10 percent of either house within 15 days of its final approval in the Senate.

Spain's "indignant" protest movement against high unemployment and the handling of the economic crisis called a rally before parliament seeking a referendum.

The country's biggest unions joined with citizens' groups to call for protests Wednesday and Thursday across the country and a "major demonstration" in Madrid on September 6.

French President Nicolas Sarkozy and German Chancellor Angela Merkel earlier this month called on eurozone countries to adopt a 'golden rule' from 2012 requiring governments to balance their budgets.

Soledad Pellon, market strategist at IG Markets, said the reform carried a negative risk if it became harder for the government to go into the red to stimulate the economy during a recession.

"I think that for the image Spain sends abroad it is fairly positive," however, she added.

Pellon said the reform resembled Germany's own balanced budget law and it demonstrated that Spain was acting as rapidly as possible to restructure its accounts.

Spain is seeking to slash the public deficit to 6.0 percent of GDP by the end of the year from 9.2 percent in 2010. It aims to reach the EU-target of 3.0 percent by 2013.

Massive budget deficits, way above the EU ceiling of 3.0 percent of gross domestic product, have left eurozone states with a debt overhang which they are now struggling to control and pay down.

© 2011 AFP

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