Spain's ruling, opposition parties sign deficit deal

26th August 2011, Comments 0 comments

Spain's ruling and opposition parties agreed Friday on a constitutional limit to the public deficit to fend off fears of a spreading eurozone debt crisis.

The ruling Socialist and conservative opposition Popular Party set a maximum structural or long-term deficit in the annual budget of 0.4 percent of gross domestic product (GDP) from 2020, a copy of the accord showed.

"This agreement is good news for the Spanish economy and for our citizens," Socialist Party election campaign chief Elena Valenciano said after it was signed in the early hours.

"The constitution will take in the principle of long-term budget stability so that Spain does not incur a debt that ends up seriously mortgaging our future," she said in a statement.

The deal, the broad outlines of which were first announced two days earlier, was a surprise in Spain's highly charged political climate ahead of November 20 general elections.

The Popular Party, which blames the Socialists for Spain's economic ills including a jobless rate of more than 20 percent, is riding high in the opinion polls ahead of the vote.

Prime Minister Jose Luis Rodriguez Zapatero is not running in the elections and his former deputy and interior minister, Alfredo Perez Rubalcaba, is the Socialists' new standard bearer.

Under the deal, the Spanish state would be allowed a structural deficit of up to 0.26 percent of GDP and the 17 semi-autonomous regions a maximum shortfall of 0.14 percent of GDP.

Smaller, local governments would be required to show a balanced budget.

The structural deficit could be revised in 2015 and 2018 at the request of either of the political parties, according to the agreement, which they plan to approve by June 30 next year.

The deal, released on the Socialist Party's website, covers only the structural or long-term deficit.

It does not try to prevent budget swings caused by the economic cycle, for example deficits incurred in times of recession because of falling tax income and higher spending on unemployment benefits.

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

The new law also will set out criteria for trimming Spain's total accumulated public debt, aiming to reach by 2020 the level agreed with the European Union.

Spain's total public debt amounted to 63.6 percent of annual GDP at the end of March, surpassing the EU limit of 60 percent but still well below the bloc's average of 80 percent.

© 2011 AFP

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