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Spain to put debt ceiling in constitution

Source: Reuters - Tue 23rd Aug 2011

Spain plans to change its constitution before elections in November to include debt limitations that guarantee budget stability in the medium- and long-term, the prime minister said on Tuesday.

Prime Minister Jose Luis Rodriguez Zapatero said he had spoken to the opposition People's Party (PP) and said it was feasible to include new proposals in the constitution before the end of the government's legislature.

The leader of the PP Mariano Rajoy said in the same parliamentary session his party would support any constitutional change to cap spending.

General elections are due in Spain on November 20 as the country continues to struggle to convince markets it will not eventually have to follow Greece and others in seeking aid to deal with its high debt burden.

"The sense of this initiative is in line with others we have announced: it implies the commitment with the need of definitive consolidation of the Economic and Monetary Union, and it represents a step toward strengthening confidence in the medium and long-term stability in the Spanish economy," Zapatero said.

Speaking in parliament to explain savings measures worth 5 billion euros to help its budget deficit cutting targets this year, Zapatero said the government would approve new measures to stimulate the labour market.

Measures to be laid out on Friday will include steps to change temporary work contracts for young people into indefinite training contracts, and measures to help youth workers re-train in other sectors after losing their jobs.

Zapatero also said measures put forward last week, which include cuts to pharmaceutical budget costs, and tax changes to the calendar of payments made by large companies, would assure the government meets its deficit target this year.

"This is the additional margin to meet the 6% target this year."

The government aims to cut its deficit to 6% of GDP from 9.2% in 2010.

Zapatero also said the recent rise in the spreads of Spanish sovereign debt against German debt were not justified.

A campaign of bond-buying by the ECB has brought Spanish yields down from increasingly unsustainable levels seen last month and eased concerns of an immediate market meltdown.

But economists say the euro zone's debt crisis still has further to run given the reluctance of Germany and France to take more radical measures and the prospect of chronically low growth in many countries for years to come.

Zapatero said that Spain's economy was growing despite the extreme market volatility but the turbulence threatens to prolong the country's own crisis.

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