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