Spain will reform its constitution to limit the budget deficit and the level of public debt under a law proposed by José Luis Rodríguez Zapatero, the Socialist prime minister, and supported by the rightwing opposition.
The amendment, welcomed by Spain’s European partners as they struggle to restore international confidence in the eurozone, will be only the second since the Spanish constitution was agreed in 1978 after the end of the Franco dictatorship. The first was to comply with membership rules for the European Union.
Mr Zapatero announced the plan for a constitutional limit on the deficit on Tuesday after members of parliament were recalled from their holidays to debate the economic crisis.
“The idea is to establish a rule to guarantee budgetary stability in the medium and long term, in relation both to the structural deficit and to debt,” Mr Zapatero said. “It will be binding on all public administrations.”
Mariano Rajoy, leader of the opposition Popular party, said that he had been proposing such a measure since June last year and that his party would support it.
Germany and France, the two biggest eurozone economies, have either adopted or promised similar legislation to control fiscal deficits.
With support from most deputies, the law could be approved before the end of the current parliament on September 26. Mr Zapatero has called an election for November 20 and opinion polls suggest Mr Rajoy and the PP will win easily following more than three years of economic crisis.
Details of the proposed constitutional change have yet to be announced but it is likely to conform broadly to the European Union’s widely flouted “stability and growth pact”, which limits a country’s budget deficit to 3 per cent of gross domestic product and its accumulated debt to 60 per cent.
Spain’s deficit peaked at 11.1 per cent of GDP in 2009, fell to 9.2 per cent last year and is targeted to decline to 6 per cent this year.
Mr Zapatero’s latest drive to ensure the 2011 target is met includes early payments of corporation tax by big companies and greater use of cheaper generic drugs by the health service. Together, these two measures are designed to narrow the deficit by €5bn.
“The government wants to be able to rely on an additional margin up to the end of the year to guarantee that the public sector as a whole meets the target,” Mr Zapatero said.
“In just two years, our country will have reduced the public deficit by almost half – 5.2 percentage points of GDP, one of the biggest austerity efforts ever known to have been made by a developed economy.”
The Spanish treasury, meanwhile, successfully auctioned €2.9bn of three- and six-month bills at lower yields than in previous auctions following intervention by the European Central Bank to buy Italian and Spanish bonds in the secondary market.
Yields spiked at the start of this month, arousing fears that the two countries would be unable to raise new money at sustainable prices and would be forced to seek help from the EU and the International Monetary Fund, like Greece, Ireland and Portugal.