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Spain sets limits on public deficit

Madrid, August 27, 2011

Spain reached political consensus to set constitutional limits on its public deficit and debt, though there were few signs the accord would persuade markets Madrid can manage its finances as growth slows.

The constitutional amendment agreed by the main parties will take effect in 2020 and not include deficit cap figures, the ruling Socialist party said.

The deal follows calls by Germany and France for Spain and other states at the sharp end of the euro zone debt crisis to set binding limits on their deficits to regain investors' trust.

'In our opinion, the agreement doesn't offer credibility on the commitment to containing the deficit,' Spanish bank Banesto said.

'Not so much because of the lack of concrete numbers, but because they leave the door open to too many exceptions and the possibility of changes in the future.'

The amendment must be approved before June 30, 2012, and will be accompanied by an ancillary law to set a ceiling for the structural deficit - the fiscal gap over the course of a normal economic cycle - at 0.4 per cent of gross domestic product.

Economy Minister Elena Salgado earlier defined normal growth as between 2pc and 3pc, but Spain has not seen annual growth top 1pc since 2007.

Economists fear market-pleasing austerity measures could choke future expansion. 'Spain has to tread a careful line to assure its economy is not throttled by fiscal entrenchment. Growth, or the lack of it, has reared its ugly head and Spain has to strike a balance,' said Spiro Strategy economist Nicholas Spiro.

Government measures announced yesterday aimed at improving job prospects for young workers. Youth unemployment stands at 45pc, blamed partly on lacklustre recovery.
 




Tags: Spain | growth | limit | public deficit |

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