Bloomberg News

Spanish Lawmakers Approve Budget Amendment Amid Demonstrations

September 02, 2011

Sept. 2 (Bloomberg) -- Spain’s parliament approved the inclusion of budget rules in the constitution as demonstrators gathered in Madrid to protest the measure the government hopes will reassure investors and cut its borrowing costs.

The amendment, only the second in the charter’s 30-year history, was backed by 316 lawmakers and rejected by five, while 29 deputies stayed away from the vote, parliament Speaker Jose Bono said. The measure will bind all levels of government, including the regions, while central and local administrations will need lawmakers’ approval to issue debt.

The extra yield investors demand to hold Spanish bonds rather than German equivalents rose to the most in almost a month as lawmakers debated the measure to enshrine the “principle of budget stability” in the constitution without setting numerical limits. The amendment has drawn criticism from members of Socialist Prime Minister Jose Luis Rodriguez Zapatero’s party three months before a general election.

The spread on Spanish 10-year bonds compared with German equivalents rose to 300 basis points today for the first time since Aug. 8, when the European Central Bank began buying Spanish debt in a bid to stem the sovereign-debt crisis. The spread reached a euro-era intraday record of 418 basis points on Aug. 5.

More detailed rules, including a numerical limit to the “structural deficit” to be implemented from 2020, will be laid out in a separate law to be adopted by June 30, 2012, according to the amendment. Exceptions can be made to the debt and deficit limits in the case of natural catastrophe, recession or “extraordinary emergency.”

Walkout

The constitutional amendment has won praise from Chancellor Angela Merkel of Germany, which has included its own “debt brake” in the constitution. France and Italy are planning similar moves as part of their efforts to protect the euro region from the spreading debt crisis.

At least nine lawmakers walked out of the assembly before the vote as a sign of protest while demonstrators gathered in the Plaza de Neptuno square near parliament to demand a referendum on the amendment.

The measure has angered Zapatero’s traditional allies in the unions as well as members of his own party, which polls suggest will lose the Nov. 20 election. Antonio Gutierrez, a Socialist lawmaker and former union leader, said on Aug. 25 the amendment amounted to “political suicide” for the party.

Zapatero isn’t running for re-election and will be replaced as candidate for premier by Alfredo Perez Rubalcaba, who is trying to woo supporters angered by the Socialists’ wage cuts, pensions freeze, tax increases and bank bailouts. Rubalcaba, who negotiated to make the terms of the amendment less specific, has pledged a tax on the wealthy and on banks as he tries to narrow the PP’s lead in opinion polls.

The People’s Party 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.

--Editors: Jennifer M. Freedman, Eddie Buckle

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; 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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