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Moody's Downgrade of Spain 'Under Review'

Mon 29th Aug 2011

The PM's plan to embed budget rules into Spain's constitution is "credit positive," according Moody's credit ratings agency, as unions are calling for a referendum on the amendment.

The agency, who placed Spain's Aa2 rating on review for a possible downgrade last month, said how they will now take the recent amendment into account. The proposal, backed by the PP opposition party, shows "broad consensus" on budget discipline, Moody's said in a statement today.

But even though the amendment was agreed between the two main political parties, it has been widely criticised by many member of the ruling PSOE, and a number of trade unions, who are urging for protests and industrial action to take place in order to force a referendum on this issue.

The amendment comes just two weeks after the ECB began buying Spanish debt, and includes writing the "principle of budget stability" into the constitution and which obliges future governments to meet EU limits on debt. The amendment is due to be debated in Parliament tomorrow and Friday.

The government has rejected the need for referendum on the amendment, saying constitutional law doesn't require it to be put to a popular vote. The constitution has only ever had one previous amendment since being applied after the return to democracy in 1978.

The amendment was suggested by the PM last week as part of his efforts to rein in a surge in borrowing costs that prompted the ECB to start buying Spanish bonds.

The constitutional amendment should "ensure continued ECB support," according to Moody's.

The amendment also calls for public debt not to go beyond 60% of GDP, however it may exceed this limit in cases of "natural catastrophe, economic recession or emergencies," according to the text distributed last week by the PSOE.

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