Deficit agreement

The Socialist Party and the opposition Popular Party agreed early Friday to amend the Constitution to set a cap on the public deficit based on a flexible commitment to limiting spending. The amendment requires the state to respect the principle of budgetary stability, with both the central government and the regions adhering to EU limits on structural deficits.

The new law will need to be approved by June 30, 2012. Under the 0.40 percent deficit-cap agreement, the central government's structural deficit can't exceed 0.26 percent of the country's GDP, while the deficit of regional governments can't surpass 0.14 percent of GDP. The limits set for the deficit can be revised in 2015 and in 2018 if any of the two subscribing parties deems it necessary. Spain's constitutional amendment will allow the country's government to run small budget deficits when economic growth is low or if the economy contracts.

Opposition has been widespread. The Catalan and Basque nationalist parties, along with the left, and many from the Socialist Party itself, have expressed serious reservations if not outright opposition to the idea of including any written limit in the Constitution on spending, while some regional leaders fear its impact on central government funding of the regions.

The amendment will be the biggest change to the Constitution in its 33 years of life. So far, the most notable amendment has been allowing non-Spaniards voting rights in European and municipal elections, a requirement of the Maastricht Treaty. Zapatero's proposal has split the Socialist Party; as prime minister he has the authority to put forward such proposals, but in doing so he also seriously undermines the electoral campaign of his colleague Alfredo Pérez Rubalcaba, the former interior minister and the man now running for prime minister in November's early elections. The differing interests of the pair were bound to clash from the moment that Zapatero decided to remain secretary general of the party, while announcing the dissolution of both houses of parliament two months early, thereby creating a hiatus within which conflict is already flourishing. Zapatero has made a mistake by putting forward major changes without first assuring the agreement of his own party's senior figures, or even its parliamentary group.

From the moment that Congress was presented with the proposal to include a deficit cap in the Constitution, the most important task was to find the mechanisms that would allow representatives to discuss the details. Talks have continued in search of a way forward to deal with the challenges that Spain faces. On the one hand, the amendment would send a signal to the international money markets and the rest of Europe that the government is committed to bringing down the deficit. At the same, a way must be found to reach as broad a consensus as possible during the proposal's passage through Congress and the Senate.

Zapatero has said that he will not put the proposal to a referendum, a decision that has prompted criticism from many quarters. The speed with which he wants to introduce the measure has also been questioned in many quarters. The government now has an obligation to explain to the country why it has decided now, with the legislature all but run out, to introduce a measure that will have wide-ranging legal consequences, but will be of little immediate impact at the economic level.