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27 August 2011

WSJ: Spain cements deficit-cap deal


Spain's main political parties reached a final deal on a key amendment that will include a budget-deficit cap in the country's constitution, in the latest sign that eurozone peripheral countries are pushing forward with reforms suggested by Germany.

The agreement, reached by the Socialist government and the opposition Popular Party, could be completed soon because the two political forces together command over 90 per cent of seats in both chambers of Parliament. It came after a full day of negotiations that stretched well past midnight on Thursday, mirroring the hurried nature of the reform, conducted in a race against the clock ahead of the dissolution of Parliament before a general election called for on November 20. Spain's speedy move contrasts with a slower response in Italy, another important member of the troubled European Union periphery, where a similar reform is likely to take at least a year because of the complex parliamentary procedure needed for constitutional changes.

The amendment comes as Spain confirmed Friday an earlier estimate that its modest economic bounce slackened in the second quarter, with the economy growing at a 0.7 per cent annual pace as foreign demand for Spanish products dropped. It also coincided with a new labour-market overhaul unveiled by the government, focusing on making it easier for companies to hire employees on cheaper temporary contracts. The Socialist Party said that an article of Spain's constitution will be amended to say that the central government, as well as regional and local governments, won't be allowed to have a budget deficit "above the levels set by the European Union for Member States".

A separate law, which the amendment says must be approved by June 30, 2012, will set a cap at 0.4 per cent of GDP for the maximum combined deficit of the central and regional governments from 2020.

Full article



© Wall Street Journal


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