The amendment does not require a balanced budget every year, and it can be waived for a broad set of reasons, including natural disasters or economic recession. But supporters say it should send a clear signal that Spain won’t follow Greece, Ireland and neighboring Portugal into European rescue programs.
Political parties agree
“We are going to do whatever is necessary to remain a part of core Europe,” Jose Manuel Campa, secretary of state for the economy, said in an interview. “The agenda of every major political party — the ideas of structurally sound public accounts, long-term sustainability, enhancing competitiveness — is not being challenged by anyone.”
The rare amendment to Spain’s 1978 constitution begins what will be a critical few weeks in parliaments across the 17-nation euro zone. Markets remain unsettled by high levels of public debt in some of the countries, the weak state of the financial system and heightened concerns about economic growth.
A broad array of tax increases, budget cuts, constitutional changes and bailouts have been proposed by national leaders in response, to be put before their legislatures in the coming weeks.
Key among the proposals: a renewed bailout program for Greece, new rules for a regionwide rescue fund, and austerity packages in Italy and France — large nations where leaders are trying to protect their national credit standing and their access to international bond markets. A debt crisis in Italy or a downgrade of France’s credit standing could deeply affect the European economy, and produce more drag on the U.S. recovery, as well.
It does not promise to be a smooth process. The Greek bailout is tangled up in demands by Finland that Greece start posting collateral for further rescue loans. A proposal to expand a rescue fund across Europe is being challenged by some lawmakers in the countries that would foot the bill, largely Germany and others in the euro zone’s economically stronger northern tier.
Additionally, Italian Prime Minister Silvio Berlusconi — facing political opposition — on Monday backtracked on plans to increase the sales tax, cut funding for local governments and impose a temporary income tax surcharge on high-income wage earners.
Berlusconi promised to offset the changes with other measures, but he still suffered a rebuke from an official of the Bank of Italy. The European Central Bank, which includes the Bank of Italy on its governing board, has been urging governments to take tougher steps to control public deficits. Italy, because of the size of its economy and its trillion-dollar-plus volume in outstanding bonds, drew particular concern when its borrowing costs began to rise this month. The country is considered too big to rescue, and a default on its bond payments could, according to analysts, create turmoil among the French, German and other banks that have lent the nation money.