Spain says new rule on budget to allow deficits

24th August 2011, Comments 0 comments

Spain's new constitutional rule on balanced budgets will let the state go into the red during crises, the government said Wednesday.

Spain's Socialist government announced a day earlier it had agreed with the opposition conservative Popular Party on the constitutional reform to give comfort to roiled markets.

"It is a measure that will reassure our investors," Finance Minister Elena Salgado told radio station Cadena Ser.

The reform, which the government hopes to pass before November 20 general elections, will largely reflect Spain's existing budget stability law, Salgado said.

"That is to say, when the growth situation of our economy is normal, the constitution will say that the budget should end with no deficit or with a very small deficit," she said.

"But also, that same constitutional reform will allow us the flexibility so that when there is a serious economic crisis or when there is a natural disaster the budget can end with a deficit."

Even in exceptional situations, however, the government should try to balance the budget, she said.

The government-opposition deal on the constitutional change was announced by Prime Minister Jose Luis Rodriguez Zapatero to an extraordinary session of parliament Tuesday.

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.

But Salgado rejected opposition charges that the government decided to change the constitution only in response to pressure from the European Central Bank.

"It is an autonomous decision of the Spanish government, no-one forced us," she said.

Spain's general elections are widely expected to deliver power to the Popular Party. The opposition blames the government for the economic crisis and enjoys a commanding lead in opinion polls.

Salgado said the existing law called for a balanced budget during normal economic growth of two-three percent a year and a surplus in times of higher growth.

But it allowed a small deficit in times of slower growth, she said.

Changing Spain's constitution to include a balanced budget provision would require a three-fifths majority in both chambers of parliament.

The constitution has been changed only once since it came into force in 1978 following the death of dictator Francisco Franco -- in 1992 to incorporate the EU's Maastrict Treaty setting up the euro single currency.

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.

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.

Greece has had to be bailed out twice -- in 2010 and in July this year -- when it could no longer service its debt and Ireland and Portugal also needed rescues by the EU and International Monetary Fund.

Italy and Spain came under intense pressure in July as the debt markets worried that they could be next in line for what would be even larger bailouts.

© 2011 AFP

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