WSJ: Spain is closer to controls on budget

03 September 2011

Spain's lower house of Parliament on Friday approved a controversial amendment that will put budgetary controls in the constitution, in the country's latest effort to overhaul its battered finances and economy as regional governments continue to struggle to meet deficit goals.

The legislation comes in response to a flare-up in the eurozone sovereign debt crisis that, in early August, sent Spanish borrowing costs to record highs. By enabling penalties for failure to comply with budget targets, the constitutional change aims to impose budget discipline.  The shortcomings of Spain's existing budget controls were exposed again this week when Extremadura became the latest region to announce it will surpass this year's target of a deficit equal to 1.3 per cent of local GDP. The new Extremadura government of the conservative Popular Party that came to power in May elections said this year's budget deficit will be about 6.81 per cent of the region's GDP. It cited a worse-than-expected financial situation left by the former Socialist government.

Spain's constitutional reform would commit all levels of Spanish government to sharing responsibility for complying with European Union budget rules. Follow-up legislation will set maximum budget-deficit levels and establish penalties for failure to comply.

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