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Spain was close to needing a rescue: Zapatero told unions

Spain was close to needing a rescue package, Prime Minister Jose Luis Rodriguez Zapatero told trade unions in mid-August as economies were rocked by market turmoil, a union leader said Monday.

“He told us that (the economy) was in very bad shape, that he saw it sliding into the abyss, on the brink of (needing) rescue,” Ignacio Fernandez Toxo, leader of one of the principal unions, the CCOO, told public TVE television.

He said Zapatero made the statement at an August 17 meeting, six days before announcing that Spain should amend its constitution to incorporate a balanced budget provision, in line with fellow eurozone member states struggling to tame a destabilising debt crisis.

The prime minister’s office declined to comment on the claims.

The reform, covering both the annual budget deficit and accumulated debt, would “reinforce long-term confidence in the Spanish economy,” Zapatero told an extraordinary session of parliament called to approve fresh austerity measures worth 4.9 billion ($7.0 billion) aimed at balancing Spain’s strained finances.

Spain’s lower house voted on Friday to put the budget deficit cap in the constitution after a stormy debate, cheering markets but infuriating many at home.

To become law the reform must still be cleared by the Senate, which will vote Wednesday.

While investors and major European powers welcome the planned reform, many in Spain are furious at the change and demand the right to a referendum before it goes ahead.

Unions, some civil groups and many smaller parties say it is a hasty change to please markets that ties the hands of the government and squashes the rights of the powerful regions.

Spain’s main unions, the CCOO and UGT, called for mass protests against the reform in Madrid on Tuesday.

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

As European stocks tumbled on Monday, with bank stocks hit particularly hard by acute tension over the risk of recession in leading economies and over eurozone debt, Madrid shed 4.69 percent.