Spain eyes constitution change to limit deficit

By Daniel Woolls

Associated Press

Published: Tuesday, Aug. 23 2011 4:55 a.m. MDT

Spain's Prime Minister Jose Luis Rodriguez Zapatero speaks during a extraordinary session at the Spanish Parliament in Madrid, Tuesday Aug. 23, 2011. Zapatero and its opposition leader agreed to work on amending the Constitution to limit the government deficit. Spain is among many countries which are far from complying with an EU-mandated deficit limit of 3 percent of GDP.

Daniel Ochoa de Olza, Associated Press

MADRID — Spain's prime minister and the opposition leader agreed Tuesday to work on amending the Constitution to limit the government deficit, an effort to allay fears the country may need help handling its debt.

Premier Jose Luis Rodriguez Zapatero did not give details on what such a limit might be, but it would be welcomed by investors worried about the huge amount of government spending in Europe. Spain is one of many countries not complying with an EU-mandated deficit limit of 3 percent of GDP.

The move comes in response to a call last week by French President Nicolas Sarkozy and German Chancellor Angela Merkel for all eurozone nations to enact constitutional amendments requiring balanced budgets.

The two leaders said they want the process completed by the summer of 2012, although it would almost certainly run into protracted political difficulties in many countries.

Opposition leader Mariano Rajoy said he agreed to work on such a deficit-limiting amendment. It would require a three-fifths majority in both chambers, and Zapatero said he believed an amendment bill could be drafted quickly and passed.

"I think reaching an agreement on constitutional reform is feasible" and so is approving it "right away," Zapatero told Parliament during debate on new measures announced last week to cut spending and raise more revenue.

Spanish general elections are scheduled for Nov. 20 but Zapatero is not running for a third term in office and Rajoy's center-right Popular Party is expected to win the election.

Spain is struggling to recover from nearly two years of recession prompted largely by the collapse of a real estate bubble. The jobless rate is near 21 percent and economic growth remains weak.

Concerns that Spain could not handle its debt saw its borrowing rates rise this year to the point that the European Central Bank was forced to intervene in markets in August to buy bonds. That support was crucial in bringing back down Spain's bond yields — the interest rate it pays when raising cash from international investors.

That improvement was visible in a debt auction on Tuesday. Spain paid sharply reduced interest rates as it easily raised nearly €3 billion in two short-term bond auctions.

The treasury sold €2.14 billion ($3.1 billion) in six-month bills with a yield of 2.2 percent compared with 2.5 percent in the last such auction July 26.

It sold €805 million ($1.2 billion) in three-month bills with an average interest rate of 1.4 percent, down from 2 percent in July.

Demand was more than three times the amount on offer for the six-month bills, while the three-month category was more than seven times oversubscribed.

Ciaran Giles in Madrid contributed to this report.

Get The Deseret News Everywhere

Subscribe

Mobile

RSS