Sun Aug 28th, 2011 at 07:52:40 PM EST
ElPais.com in English: Spain's main parties agree constitutional amendment capping public deficit
The draft law was filed with Congress on Friday and is due to be approved on September 2 without recourse to a referendum, allowing it to be in place before general elections called for November 20 in which Prime Minister José Luis Rodríguez will not be standing, and which are expected to be won by the PP.
The government's latest effort to ward off attacks on its sovereign debt also affords a de[g]ree of flexibility in cases of "natural disasters, economic recession and situations of exceptional emergency out [of] the control of the government that considerably prejudice the economic or social sustainability of the state."
At a news conference after the regular Friday Cabinet meeting, government spokesman José Blanco "categorically" denied that reform had been carried out under heavy pressure from the European Central Bank. "The ECB never brought up the reform of the Constitution," he said. "You can't respond to a demand that never existed."
Despite the denials, there is widespread conviction (Update [2011-8-30 10:50:13 by Migeru]: and some evidence) that Zapatero has been subject to blackmail of some sort to submit to the demands of Merkel and Sarkozy. The impression that something is afoul here is based in part on the fact that as late as August 18, the conventional wisdom in Spain was that it was difficult to carry out the Constitutional reform that Sarkozy and Merkel demanded by mid-2012, and that the government's position was officially that the existing Law on Budget Stability (introduced by Aznar's PP government in 2001) was sufficient. (See the difficulty of inserting a zero deficit clause in the constitution, in Spanish)
The debt brake that, since 2009, is enshrined in the German Constitution is the main evidence of Angela Merkel's obsession to keep public accounts under control. A demand that now, with the support of Nicolas Sarkozy, she wants to cast in stone in the whole of the Eurozone by next summer.Gleichschaltung
To incorporate into the constitution of each country this kind of commitment will be hard, even with the support of all Governments, a condition that is now not fulfilled. In Spain, for instance, the Government holds that the Budget Stability Act is sufficient. The attempt to reinforce it by a spending rule applicable to all Administrations ended up with a mixed result: the regions, the administrative level that the markets most doubted, accepted a rule, but with their own criteria.
If the Spanish government decided to take the Franco-German demand on board, the road to a fast-track reform appears almost impossible: with the opposition of just 1/10 of deputies, the parliament would have to be dissolved and a referendum called.
Only two days after this was published, ZP announced his intention to introduce a constitutional spending ceiling during an extraordinary plenary session of the Parliament convened to discuss the recent financial turbulence. The reform will be carried out with two further extraordinary sessions this coming Tuesday and Friday, as the Parliament would normally be adjourned at this time.
I can think of one reason to attempt this now, though, and that is that after the November 20 elections it is likely that the PSOE will lose enough support so that the minor parties could assemble a blocking minority of 1/10 of the deputies, which is not the case now (after the 2008 elections, PP and PSOE together hold over 90% of all seats and so right now a backbench revolt among PSOE deputies is needed for a referendum). But the official line is different: Zapatero's last-minute doubts on budget reform
An hour before the session of Congress in which he announced the second reform to the Spanish Constitution since 1978, José Luis Rodríguez Zapatero was still hesitating. Aides say that the prime minister also considered the option of simply making a statement supporting the introduction of an article on budget stability into the charter, but leaving the actual drafting for after the general elections of November 20.
Germany had already introduced the concept in its own constitution, while France is working on it and Italy said it would, too. Zapatero, said aides, felt that Spain should be a part of this process and join other members making major decisions aimed at greater European unity.
"He increasingly saw that just a statement of intentions was going to be a watered-downed decision, considering the situation. On the contrary, initiating the [constitutional] reform could have a very positive impact on Europe and the markets, much more so with the support of the main opposition party," says one well-informed source.
This is probably the least ominous reason for the rush to approve this. In fact, most of the provisions of the new Constitutional amendment and impending Organic Law won't take effect immediately. The spending ceiling only becomes binding after 2020 (however, to bring a 9% deficit to 0.40% in 9 years does require reducing it by 1% per year in the middle of a recession, which will require biting austerity with immediate effect). There's only one provision of the proposed New Article 135
(in Spanish) which will have immediate effect:
Los créditos para satisfacer los intereses y el capital de la deuda pública de las Administraciones se entenderán siempre incluidos en el estado de gastos de sus presupuestos y su pago gozará de prioridad absoluta. Estos créditos no podrán ser objeto de enmienda o modificación, mientras se ajusten a las condiciones de la Ley de emisión.
Credits to service interest and principal on the public debt of the various Administrations will be understood to be part of the expense account of their budgets, and their payment will have absolute priority. These credits won't be subject to amendment or modification, as long as they keep to the conditions of the law by which they were issued.Update [2011-8-30 3:59:57 by Migeru]:
The emphasised text is what's being added by the amendment.
In other words, debt service before essential public services, added to the existing ban on debt restructuring under the Constitution. So one cannot escape the suspicion that as soon as this is in the books Spain will be subject to renewed market attack, having made the threat of default unconstitutional.
Was this part of Merkel's demands or is this a way for Spain to one-up her in "Europeanness" (believe it or not, PSOE candidate Rubalcaba has tried to sell people this reform by saying it it "pro-European" - such is the extent of Spain's European inadequacy complex 25 years after joining the EU).
The constitutional debt brake is economically illiterate even for Germany (see Fiscal Rules Going Mad on Bill Mitchell's blog) let alone for Spain. It condemns Spain (and the whole of the Eurozone, if passed in most member states) to a period of economic stagnation to rival the Great Depression. But no matter, Merkel would have us believe that up is down and left is right:
German Chancellor Angela Merkel said investors are trying to "blackmail" governments into helping debt-strapped European countries, underscoring the need for all euro-area governments to reduce debt.
"After the states bailed out the banks, the financial markets are again trying to blackmail states and tell them, `You've made so much debt,'" Merkel said today at a rally of her Christian Democratic Union in the eastern city of Brandenburg, about 50 kilometers (30 miles) from Berlin.
The solution is to press "countries that are highly indebted to really do their homework and get their debt down," she said. "A Europe with a common currency requires common duties."
There's so much Orwell here I'm surprised nobody called her to task. But, of course, she was speaking to her party faithful.