Spain changes constitution to cap budget deficit

. Spanish Socialist Party and its opponents agree the deficit limit Popular

limit of 0.4% of GDP from 2020

Spanish politicians have gone a step spectacular to win back market confidence by agreeing to reform the country's Constitution to introduce a cap on future deficits.

The Socialist Party (PSOE) of outgoing Prime Minister Jose Luis Rodriguez Zapatero and the Conservative Party's opposition Popular (PP) said the cap would take effect in 2020. The limit was set at 0.4% and will affect all levels of the highly decentralized administration of Spain, including regional governments run health and education.

The decision was taken at the end of a month that saw the sovereign debt of Spain under strong market pressure amid fears he may need a bailout Nations like the peers of the eurozone Portugal, Greece or Ireland. There was also a week after Germany, Angela Merkel and Nicolas Sarkozy of France, Nicolas called the euro area countries to establish legal boundaries of its deficit to integrate their economies. So far, only Germany has a limit.

Spanish politicians said the move was a step towards integration in the euro area. "August was a month of financial instability. Investors have lost confidence in the euro area," said Alfredo Perez Rubalcaba, the PSOE candidate for prime minister general elections in November. "We must regain the trust and prove they are solvent."

The PP, led by Mariano Rajoy, had demanded this measure for years. "We want to be among the countries at the forefront of European economic policy," spokeswoman Soraya Saenz de Santamaria.

• With more than 90% of MPs between them, both parties can push constitutional changes before Parliament was dissolved on September 27.
Unlike Germany, Spain will not specify the size of the lid of the deficit in the Constitution. According to the draft, the new clause will only say a cap should be set either by the European Union or, failing that, the Spanish Parliament. The limit can also be broken in a recession or national emergency.

German constitution imposes a ceiling of 0.35% for 2016. Limit of 0.4% in Spain will first be established by special legislation.

Saenz de Santamaria said the agreement will force governments in the future to keep debt below a ceiling of the EU-set 60% of GDP. However, the debt of Spain is expected to reach 65% of GDP this year, below the average euro area and behind Germany, France, Britain and the United States. The IMF recently estimated that the amount to about 75% of GDP by 2016. While the new measure is intended to calm the markets, which have no impact on the current account deficit in Spain.

figures released Friday showed the annual GDP growth fell to 0.7% in the second quarter, making it difficult to reach the government expects 1.3% for 2011.

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