Spain government inches closer to budget support

[September 23, 2010]  MADRID (AP) -- Spain's government has reached a deal with a small opposition party that will help it pass a 2011 budget that is key to getting the deficit down, reassuring markets worried over the country's finances and its survival in power.

The ruling Socialist party leads a minority government that relies on support from opposition parties on a case-by-case basis to get laws passed. The government has become even more isolated of late as parties criticize its handling of Spain's economic crisis, marked by a 20 percent jobless rate and listless growth after nearly two years of recession.

Failure to pass a budget would be unprecedented and presumably force Prime Minister Jose Luis Rodriguez Zapatero to call early elections.

The ruling party's spokesman in Parliament, Jose Antonio Alonso, announced Wednesday night a deal with the small Basque Nationalist Party that will probably guarantee its support for the budget. The Basque party's leader, Inigo Urkullo confirmed the deal and said his party has "a lot of interest in the economic stability of Spain."

But the budget is not a done deal yet.

The government has 169 seats in the 350-member Parliament and the Basque party has six, for a total of 175. So the government needs at least one more vote, or another opposition party to abstain when the budget is voted on. It will be unveiled Friday, then go to Parliament for debate.

The deal with the Basques comes with a price tag.

Jurisdiction over employment and other labor policies in that region -- a long-standing demand of the Basques -- will be transferred to the Basque government in a package worth euro472 million ($630 million).

The government says the national spending blueprint will be an austere one aimed at achieving its goal of slashing the deficit -- 11.2 percent of national income last year -- to the EU limit of 3 percent in 2013.

Labor market reforms and austerity measures already enacted, such as a freeze on pensions and cuts to civil servants wages, have prompted unions to call a general strike for Sept. 29, the first in Spain in nearly a decade.

Unions had hoped to isolate Spain that day by choking off all international flights and providing only commuter train service on the railways.

But unions in some sectors are obligated to provide at least some services and marathon talks with the government that began Wednesday night yielded an agreement under which the scenario would not be quite so grim for travelers. There would be 20 percent of normal long-distance train services, 20 percent of regularly scheduled flights to other European countries and 40 percent of intercontinental flights, said Enrique Fossoul, a union negotiator.

News reports also said the government, which has alienated many leftists in Spain with its austerity plan, is considering raising income taxes on the highest earners in Spain.

The newspaper El Pais said this would affect people earning more than euro120,000 a year, a tiny minority in a country where the average yearly salary is about euro20,000. So the extra deficit-cutting revenue from the increase would be minimal.

The Finance Ministry has not confirmed the planned tax hike.

[Associated Press; By DANIEL WOOLLS]

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