Troubled Spain amends constitution to limit debt

Troubled Spain amends constitution to limit debt Madrid: Spain's main political powers have agreed to amend the constitution to make the government legally obliged to keep its deficit low, an effort to reassure markets that the country will keep its troubled finances under control and not need a bailout.

The ruling Socialists and the center-right Popular Party cut a deal in the early hours of today after frantic negotiations to propose a law under which, starting in 2020, the national deficit cannot surpass 0.4 per cent of GDP.

That threshold can be surpassed only in cases of natural disaster, economic recession or other extraordinary circumstances that will have to be declared formally by a vote in Parliament.

The Constitutional amendment is expected to be voted on September 2 in the lower house of Parliament, while the actual law is due to be passed by the end of June of next year.

Alfredo Perez Rubalcaba, the Socialist candidate for prime minister in general elections due in November, praised the accord as an essential tool to restore confidence in Spain and the eurozone after a turbulent month on bond and stock markets. He also said the deal allows for essential wiggle room.

"We wanted stability with flexibility to let Spain react to situations that we cannot now predict," Perez Rubalcaba told reporters.

"It is a good agreement from an economic, social and political standpoint," added Soraya Saenz de Santamaria, who co-led the negotiations for the Popular Party.

The government is in a rush to pass the constitutional amendment, both to shore up market confidence and because Parliament will break up in the end of September ahed of general elections on November 20.

Spain insists it is not acting under pressure from European authorities, even though French President Nicolas Sarkozy and German Chancellor Angela Merkel last week called for all eurozone nations to enact constitutional amendments requiring balanced budgets.

Spain is struggling to recover from nearly two years of recession prompted largely by the collapse of a real estate bubble. The jobless rate is near 21 per cent and economic growth remains weak.

Concerns that Spain could not handle its debt saw its borrowing rates rise this year to the point that the European Central Bank was forced to intervene in markets in August to buy bonds and bring the rates back down. Yields indicate of how much faith investors have in a country's debt higher yields show greater mistrust.