Spain to enshrine debt ceiling in its constitution
Prime minister Zapatero announces plan along with latest public cost-saving measures
By CFOWorld.co.uk | CFO UK | Published 12:57, 23 August 11
The Spanish government will enshrine a debt ceiling in its constitution before nationwide elections in November, its prime minister said on Tuesday.
Jose Luis Rodriquez Zapatero, who will not be standing for re-election, said the action will help demonstrate Spain’s commitment to balancing its books in the medium to long-term.
He said the move would receive full support from the People’s Party, his main political opponents, and will show markets that steps are being taken to improve the sustainability of Spain’s public finances.
“The sense of this initiative is in line with others we have announced: it implies the commitment with the need of definitive consolidation of the economic and monetary policy, and it represents a step towards strengthening confidence in the medium- and long-term stability in the Spanish economy,” said Zapatero.
The Socialist leader was in parliament to explain savings measures, expected to be voted through on Tuesday, worth €5 billion (£4 billion) this year and aimed at guaranteeing the government will hit its public deficit target of 6 percent of gross domestic product.
Spain has come under sustained market attack since the beginning of the euro zone debt crisis, and this has pushed up debt costs to unsustainable levels, on concerns the bloc's fourth largest economy would need international aid.
The latest austerity measures, which include cuts to pharmaceutical budget costs, and tax changes to the calendar of payments made by large companies, would act as a buffer to deficit reduction plans, Zapatero said.
“This is the additional margin to meet the 6 percent target this year,” he said.
Economists have warned that over-spending by the country’s 17 regional governments could mean the government misses its deficit target this year, with the Bank of Spain forecasting a shortfall of 6.2 percent of GDP.
The €5 billion of savings from the latest measures amount to around 0.5 percent of GDP.
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