Spanish Prime Minister Jose Luis Rodriguez Zapatero will seek lawmaker backing today for a spending plan for next year as his Socialist government prepares a budget that may determine whether he can finish his mandate.
Parliament in Madrid will vote on Zapatero’s proposed 3.8 per cent reduction in central government expenditure for 2012, which would limit it to euro 117.4 billion ($165 billion). That’s a first step toward submitting a budget in September that would need approval by the end of the year.
Zapatero faces the twin challenges of keeping Europe’s sovereign debt crisis at bay while staying in power until his term ends in March 2012 as he resists calls for early elections that may intensify if the budget fails to pass. Socialist Party spokesman Jose Antonio Alonso said yesterday that negotiations with lawmakers to secure backing for today’s vote are still not concluded, Spanish agency EFE reported.
“The government is under a lot of pressure because it can lose investors’ confidence, which could start a crisis like in Ireland, Greece and Portugal,” said Antonio Fatas, an economics professor at the Paris-based Insead business school who has consulted for the International Monetary Fund and the World Bank. “Spain can fall into the same category even though its fundamentals are stronger.”
The deepest budget cuts in at least three decades, as well as measures to raise the retirement age and reduce firing costs, have prompted protests throughout Spain and failed to stem an increase in borrowing costs. The yield premium investors demand to hold Spanish 10-year bonds over comparable German debt rose to a euro-era record of 339 basis points yesterday.
MINORITY GOVERNMENT
Zapatero’s challenge in reining in the euro area’s third- largest budget deficit has become tougher as support for his minority government falters. Catalan nationalist party CiU, whose 10 lawmakers are enough to give the Socialists a majority, said on June 28 it won’t support the 2012 budget.
A poll published by El Pais on July 3 showed 50 percent of Spaniards want early elections. The opposition People’s Party, which handed the Socialists their worst local-election defeat in three decades in May, would win 45.9 per cent in an election now, compared with 32.1 per cent for the Socialists, a poll by El Mundo newspaper showed on June 5.
Zapatero declined to comment on the timing of the elections yesterday, saying that the country currently needs stability above all. Lawmakers will vote on the government’s proposed spending limit during a session that starts at 4 pm today.
Fatas said the vote masks more fundamental issues affecting the country’s finances.
‘REAL PROBLEM’
“The real problem is much deeper,” Fatas said. “Spain has a structural budget deficit and a new government won’t be able to do much more than the present one,” he said, citing regional overspending among the country’s most pressing issues.
Spain’s Castilla-La Mancha region yesterday requested an urgent meeting with the Finance Ministry after the newly elected government there said it uncovered a deficit larger than 4 per cent of gross domestic product in the first half, compared with a 1.3 per cent full-year target.
“The deficit is much higher than what we were told,” the region’s president, Maria Dolores de Cospedal, told Onda Cero radio in an interview yesterday. “The situation is extremely serious.”
