PM to recall Congress for crisis session

Spanish Prime Minister José Luis Rodríguez Zapatero plans to recall parliament from its summer recess for an extraordinary session next week to ratify additional budget measures the Cabinet intends to approve on Friday, government spokesman José Blanco said Wednesday.

The measures the government plans to introduce by decree aim to save a further five billion euros by bringing forward corporate tax payments by big companies and by cutting spending on pharmaceuticals.

The minority Socialist government is looking for the support of the PNV, UPN and Canary Coalition regional parties to pass the decree.

In an interview with RNE state radio, Blanco, who is also public works minister, said wants to hold the extraordinary session of Congress next week if parliament agrees to it.

Blanco said the new budget measures will be presented as part of a debate on the economic and financial crisis. The main opposition Popular Party had earlier called for an extraordinary debate on the summer crisis which at one point saw the spread between the yield on the Spanish benchmark government bond and the German equivalent soar to record euro-area highs of over 400 basis points forcing Zapatero to interrupt his family vacation. The risk premium subsequently narrowed sharply as the European Central Bank began buying Spanish and Italian government bonds in the secondary market.

Blanco said the government aims to raise 2.5 billion euros from slashing outlays on medicine, partly by more rational use as well as increasing the use of generic drugs.

The latest batch of measures come on the back of an austerity drive that includes public sector wage cuts and a freeze on pensions in an effort to convince the financial markets the country can rein in its public deficit and service its debts.

The government succeeded in narrowing the shortfall in its books from 11.1 percent of GDP in 2009 to 9.2 percent last year and is aiming to bridge the gap further to 6 percent of GDP this year before bringing the deficit back within the ceiling of 3 percent set by the European Union.

The belt-tightening has put a drag on Spain's efforts to restore the country to the path of solid economic growth. According to flash estimates released on Tuesday by the National Statistics Institute, quarterly GDP growth slowed to 0.2 percent in the second quarter from 0.3 percent the previous three months and slowed on an annual basis to 0.7 percent from 0.8 percent. The INE noted a "very positive" contribution from foreign demand which was offset by a negative contribution from domestic demand. Exports in the first half of the year were up 18.6 percent.