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Spain: Proposed Constitutional Amendment to Include Debt Ceiling Provision

(Aug. 30, 2011) On August 26, 2011, the two major political parties in Spain, the ruling Socialists (PSOE) and the opposition Popular Party (PP), agreed on a constitutional amendment that, if approved, would limit the public debt and impose a balanced budget standard for the government as a whole. (Manuel Sánchez, PSOE y PP Registran en el Congreso la Propuesta para Reformar la Constitución, DIARIO EL MUNDO (Aug. 26, 2011).)

The political agreement includes the terms of a framework for an organic law to be adopted before June 30, 2012, in furtherance of the mandate of article 135 of the Spanish Constitution (Constitución Española, (CE) (Spanish Constitution, Dec. 27, 1978, as modified on Aug. 27, 1992, Spanish Senate website (last vistied Aug. 30, 2011) (official site)), which provides that the government must be authorized by law in order to issue public debt bonds or contract loans. It also requires that loans to meet payment on the interest and capital of the states public debt must be included in the budget expenditures and may not be subject to amendment or modification as long as they conform to the terms of issue (CE, art. 135).

Article 135 of the CE will be redrafted to include a balanced budget provision and a strict limit on the indebtedness that both the national government and the regional governments may incur. The new provision would include exceptions to the debt ceiling limits in case of natural disasters, economic recession, or extraordinary emergencies beyond the control of the state or that, according to the absolute majority of the Congress of Deputies, seriously undermine the financial or economic and social stability of the country. (Proposición de Reforma del Artículo 135 de la Constitución Española, LA VANGUARDIA (Aug. 26, 2011).)

Although under the proposal the CE would not include specific numbers for the debt ceiling, the organic law will set an overall limit of 0.4% of the gross domestic product (GDP) as the maximum for the structural national debt, beginning in 2020. The national government will have to keep a debt limit of 0.26% of GDP, while the autonomous communities will have to keep it at 0.14% of GDP. All local entities will have to meet a balanced budget requirement. (PSOE y PP Dejan la Cifra de Déficit Fuera de la Reforma Constitucional, LA VANGUARDIA (Aug. 26, 2011).)

These limits may be subject to revision in 2015 and 2018, at the initiative of any of the parties signatory to the political agreement. (Acuerdo Político sobre la Ley Orgánica de Desarrollo del Artículo 135 de la Constitución Espanola (last visited Aug. 30, 2011), (accessed through DIARIO EL MUNDO, supra, click on link at lower left.)

Although the two major political parties are in agreement and appear to have enough votes to pass the amendment, there is mounting political opposition from the smaller parties, which were not included in the political negotiations leading to the final agreement on the constitutional reform. They are also opposed to what they consider “hasty constitutional reform.” In their view, the constitutional reform process requires instead debate and a comprehensive consensus. They are also against the inclusion of an enhanced debt ceiling provision in the CE and the limits imposed on the financial autonomy of the autonomous communities. (Los Grupos Minoritarios Critican las Formas y Algunos, el Fondo de la Reforma, DIARIO EL PAIS (Aug. 30, 2011).)

The legislative vote on the constitutional amendment will start this week and is forecast to be completed in the incoming month; it will have to be approved before September 27, 2011, when Congress is dissolved before the general elections set for November 20. (La Reforma “Exprés” de la Constitución Podría Culminar en una Semana, LA VANGUARDIA (Aug. 29, 2011).)