Bloomberg News

Spain Budget Rule Passes First Congress Test Amid Protests

August 30, 2011

(Updates with Merkel comment in seventh paragraph.)

Aug. 30 (Bloomberg) -- Spain’s proposal to write budget rules into the constitution passed its first legislative test today even as members of the ruling Socialist Party criticized the measure and unions planned street protests.

Lawmakers agreed to a debate on the proposal to include the “principle of budget stability” in the constitution and to hold a final vote Sept. 2, the speaker of parliament, Jose Bono, said. Lawmakers have two days to propose changes to the amendment, which is backed by Prime Minister Jose Luis Rodriguez Zapatero and the opposition People’s Party.

The plan has angered Zapatero’s traditional allies in the unions and members of his own party three months before a general election that polls indicate his Socialists will lose. Zapatero made the proposal, which follows similar plans in Germany and France, as part of his efforts to stem the surge in bond yields that prompted the European Central Bank to start buying Spanish debt this month.

“Spain is paying inappropriate interest rates and there is no better way of dispelling uncertainty than making the principle of budget stability a constitutional order,” Jose Antonio Alonso, the Socialists’ spokesman in parliament, told lawmakers in Madrid. The rise in bond yields “may worsen” in the coming months, he said.

The extra yield investors demand to hold Spanish 10-year bonds compared with German equivalents rose to 289 basis points today from 279 basis points yesterday. It reached a euro-era intraday record of 418 basis points on Aug. 5.

Moody’s Praise

The amendment, set to be accompanied by a separate law that limits the structural deficit to 0.4 percent of gross domestic product, was praised by Moody’s Investors Service yesterday. The rating company, which placed Spain’s Aa2 grade on review for a possible downgrade on July 29, said it will take the amendment into account in that review.

German Chancellor Angela Merkel, fighting to rally domestic support for her strategy to tackle the sovereign debt crisis, also welcomed the move. The “debt brake” is a “signal that more and more countries are willing to go down the path of common sense,” she told a press conference today in Ljubljana, Slovenia.

‘Political Suicide’

Socialist opponents of the budget rule include Antonio Gutierrez, a former union leader who said in comments broadcast by TVE today that he will vote against the measure. The amendment is “political suicide” for the party, he said on Aug. 25.

Jose Antonio Perez Tapias, a member of parliament, called on his blog for the measure to be put to a referendum. He said it would leave the party “naked like victims of a shipwreck, barely survivors of our own political project.”

Zapatero isn’t running for re-election on Nov. 20 and will be replaced as candidate for premier by Alfredo Perez Rubalcaba, who is trying to woo supporters angered by the Socialists’ wage cuts, austerity measures and bank bailouts. Rubalcaba, who supports the amendment, has pledged a tax on the wealthy and on banks as he tries to narrow the PP’s lead in opinion polls.

The PP would win 47.6 percent of the vote if the election were held now, compared with 35 percent for the Socialists, according to a poll by ABC newspaper on Aug. 7.

Smaller parties including groups that have supported the government on previous economic legislation opposed changing the constitution without a referendum or consultations with the four other groups in parliament.

‘New Sovereignty’

“It is a coup against the constitution and a hijacking of the popular will,” Gaspar Llamazares, a lawmaker for the United Left party, said in parliament today as he urged deputies to push for a referendum and “rebel” against “a new sovereignty imposed by markets.”

Spain’s two largest unions are also calling for a popular vote on the amendment, which is only the second since the charter was approved in 1978. They plan protests tomorrow and on Sept. 1 to push for a referendum. Spain’s so-called “indignant ones” movement also plans demonstrations later today in Madrid, according to its website.

The Socialists and PP have rejected calls for a referendum, saying constitutional law doesn’t require it. Marcelino Iglesias, one of the Socialists’ deputy leaders, said yesterday a referendum would create “more uncertainty precisely among those to whom we are trying to transmit certainty.”

--Editors: James Hertling, Eddie Buckle

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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