Spain launches urgent debate on budget cap

30th August 2011, Comments 0 comments

Spanish lawmakers voted overwhelmingly Tuesday to launch a fast-track 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, all but guaranteed 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 consitutional change, Spain must stick to a deficit cap except 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 deficit -- 0.4 percent of annual 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, Alonso said.

"We are a reliable country in the payment of our debts and there should be no doubt about it," he said.

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.

If approved by the Senate, there is a 15-day waiting period during which lawmakers can force a referendum if they can muster 10 percent support from either house of parliament.

About 100 "indignant" protesters, kept away by a dozen police, rallied nearby to protest the reform and demand a referendum.

A slogan -- "No to the constitution change. No to the diktat of the markets" -- was scrawled over one demonstrator's umbrella, which shielded her from the August sun.

The country's biggest unions have 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.

The European Commission applauded Spain.

"We think it's a positive move," Amadeu Altafaj, spokesman for EU economic affairs commissioner Olli Rehn, told a news briefing in Brussels.

"It underlines the commitment of Spanish authorities to guarantee the long-term sustainability of its public accounts."

Berlin wrote such a deficit rule into its constitution in 2009. Italy and France have draft legislation in the works.

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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