Rajoy and Zapatero back EU Treaty change to save euro

Spanish Prime José Luis Rodríguez Zapatero and his successor Mariano Rajoy said Tuesday they support a French-German initiative to change the European Union Treaty aimed at rescuing the euro.

The package of measures agreed Monday by German Chancellor Angela Merkel and French President Nicolas Sarkozy, which include automatic sanctions for countries breaching rules on public debt and deficits, will be put to an EU summit due on December 9 in Brussels.

"We are in favor of the reform of the treaties that will in all likelihood be proposed in the meeting next Friday," Rajoy told reporters on the occasion of the celebration of the 33rd anniversary of the signing of the Spanish Constitution that marked the country's return to democracy.

Rodríguez Zapatero said the reforms proposed by Merkel and Sarkozy were an "important move," adding he hoped they would help calm the markets. "I hope this serves to make the markets react positively and we can move on to a period of greater calm that is decisive for the economic recovery," the outgoing premier said.

Spain's risk premium fell below 300 basis points on Monday for the first time since October after news of the agreement between Merkel and Sarkozy. It was largely steady on Tuesday despite Standard & Poor's threat late Monday to downgrade the triple A ratings of six euro-zone countries, including France and Germany.

Rajoy, whose Popular Party won an absolute majority in general elections on November 20, said one of his government's first moves, once it is installed, would be to present a draft organic law in Congress to support the amendment to the Constitution agreed with the outgoing Socialist government early this year obliging the administration to adhere to fiscal discipline.

The law will prohibit the government from having a public deficit of over 0.4 percent of GDP from 2020.

"We're not going to turn our back on reforms," Rajoy said. "We will not carry them out because the European Union tells us to, but because they are also good for Spain, for its economic development and for the creation of employment."

Rajoy also hinted at a possible increase in value-added tax - whose standard rate is currently 18 percent - to meet Spain's commitment to reduce its public deficit from a projected 6.0 percent of GDP this year to 4.4 percent in 2012 before bringing it back within the EU ceiling of three percent the following year. "The measures will be announced in due time," the PP leader said.