Spain’s lower parliament has passed draconian legislation enforcing a “balanced budget”. The law, proposed by the governing Socialists and supported by the right-wing opposition Popular Party, is now expected to be passed without delay in the Senate.
The law calls for a balanced long-term budget to be enshrined in Spain’s constitution, allowing for the deficit limit to be breached only in times of natural disaster, recession, or extraordinary emergencies – and then only with approval of the lower house.
Once enacted governments in the future will be constrained in promoting growth and delivering quality public services upon which the majority depend.
The legislation, coming amid the continuing sovereign debt crisis in Europe, has been described by critics as a “neo-liberal coupe d’etat”, a “kidnapping of the popular will”, an attack on the country’s sovereignty.
Trade union centrals Comisiones Obreras and Union General de Trabajadores, the May 15 protest movement and other non-governmental organisations have been holding countrywide demonstrations against the measure this week. Further protest actions are planned on the coming days. Hundreds of students, unemployed, pensioners and trade unionists were protesting outside parliament in Madrid today where the debate on the constitutional amendment was taking place.
This new deficit cap comes after a call last month from German Chancellor Angela Merkel and French President Nicolas Sarkozy for all euro-zone countries to implement such a measure, or risk the end of the Euro.
Premier José Luis Rodríguez Zapatero’s Socialists say they would have preferred more time to debate and consult the Spanish people on the change, but foreign investors in Spanish government debt (bonds), who have being betting against the country sending public borrowing costs rocketing, needed immediate reassurances.
“We have to take a coherent and forceful decision to strengthen our country’s solvency,” said Jose Antonio Alonso, spokesman of the ruling Socialist Party.”There is no better way to dispel uncertainties than to elevate the principle of budget stability to the level of constitutional mandate so as to consolidate in the world a clear reality – we are a reliable country in the payment of our debts and there should be no doubt about it.”
United Left, the third largest national party, has been calling for a referendum on the matter, pointing out that the Socialist Government has no popular mandate.
The constitution has been changed only once since it came into force in 1978 following the death of dictator Franco — in 1992 to incorporate the EU’s Maastrict Treaty setting up the euro single currency. United Left, which opposed the 1992 constitution change, also rejects these changes to the country’s Magna Carta. And it rejects the underlying arguments put forward by Socialists and Popular Party that public spending is excessive and must be slashed.
To be sure, Spain is not as wealthy as some of its neighbours, with a gross domestic product (GDP) at 94% of the EU average. But even so, this does not explain why welfare spending stands at just 75% of the EU average. Spending on schools, hospitals and pensions should be increased by billions of Euros, not cut, it says.
Nor is the public sector employment bloated, as it is often suggested. Only one in 10 work in the public sector, compared to 1 in 4 in Sweden, United Left points out. Creating a more balanced economy would deliver five million new jobs in the public sector – eliminating Spain’s 20%-plus unemployment at a stroke – and the massive drain the jobless represent for the Exchequer.
The problem with Spain’s public finances is not excessive spending but that successive governments of left and right have been a soft touch on corporations and the rich, argues United Left. Tax policies have long “strongly favoured” high incomes and large companies, it says. These forgone tax revenues have left the Spanish exchequer poor.
The state tax take is 34% of GDP, compared to a European Union average of 44%, and 54% in Sweden. After the unsustainable housing boom turned bust this fundamental problem came to the fore. In presenting the changes to the constitution, Spain’s political elite and their allies in Paris, Berlin and the European Central Bank, have sought to make of the public finances a technical issue best left to economists.
But it has not been good economics to empty the Spanish public purse and impose, as Zapatero recently boasted, “the biggest austerity efforts ever known to have been made by a developed economy.” Otherwise every new austerity plan in Spain, as elsewhere in Europe, wouldn’t need to be followed by another.
This is class politics – politics that United Left, Spain’s trade unions and the protest movement born in May appear determined to continue challenging.