A time for statesmanship

Given the changeovers in local and regional governments as a result of the May 22 elections, and the state of the Spanish economy, the Socialist government and the opposition Popular Party (PP) must do exactly the opposite of what they have been doing so far. Instead of mud-slinging and threatening to wreak mutual damage on one another, they need to show a little statesmanship, and agree on an inter-party state pact that would establish clear guidelines for economic policy over the next few years.

Spain's weak economic growth, the high rate of unemployment and the latent risk of new speculative attacks on Spanish solvency all combine to make this an urgent requirement. The European Commission demands it too. Spain has to guarantee the fulfillment of the deficit-reduction objectives set in Brussels; and to this end must impose ? in both national and regional governments alike ? a norm to keep growth of spending below the nominal growth of GDP, something that cannot be achieved without a political pact.

There are serious reasons for such an agreement. While the national government is scrupulously complying with deficit objectives, has more or less managed to effect a reform of the pension system, and is working on other changes to the financial system and the labor market, Spanish debt is still burdened by factors that can only be solved within the framework of coordinated economic policy.

On the one hand, investors fear that with growth rates as low as 0.8 percent, it will be impossible to fulfill the objective of reducing the deficit to three percent by 2013. This fear can be read between the lines of the Commission's reports.

But now a new problem has arisen: that of local and regional debt and deficit, a subject about which a conspicuously small amount was said during the recent electoral campaign. In Castilla-La Mancha, the PP has sown suspicions over an allegedly huge hidden deficit that would, among other things, prevent the payment of civil service salaries. Nor is it hard to extrapolate these accusations to other regions of Spain, thus pointing to a state of bankruptcy in Spanish regional finances.

The consequences of this kind of accusation could be devastating. It supports the pessimistic view that regional debts may become national ones, resulting in a Spanish default.

Quarrelling at the helm

It is essential, then, that the PP set aside its irresponsible accusations and explore the path ? already suggested by its leader Mariano Rajoy ? of reaching an inter-party agreement on regional spending cuts. The PP's participation in such a pact would quell the apprehension, also hinted at in the Commission's reports, that the government is unable to impose a drastic austerity plan on the regions. The PP seems to have understood that its management, if it comes to power in the next general election, will be far more difficult without the stable political consensus needed for such an austerity plan.

A political pact on regional financing, and perhaps on some other economic measures, must convey a clear message: the Spanish economy is now just as capable of coping with its problems, and of complying with its international commitments to finance the national debt, as it was before the May elections. This readiness must be manifest in the determination to take the measures necessary to reduce the public deficit to the required levels, whether by additional spending cuts or by tax hikes if necessary.

The last two legislatures have not been fertile in such state pacts. But the difficulties of the Spanish economy do not allow for any more quarreling at the helm of the ship of state. Common sense, and responsibility, demand respect for the basic lines of economic policy, on which there is little room for discrepancy. The agreement must provide for smooth continuity, as long as the delicate economic situation lasts.