Spanish Budget Dissent Leaves Zapatero With Calls to Hold Early Election

Spain’s Catalan nationalist party said it won’t support Prime Minister Jose Luis Rodriguez Zapatero’s budget, narrowing his minority government’s chances of avoiding early elections that polls show it will lose.

The CiU party won’t back the 2012 package that goes to Parliament in September, and delaying elections until March is “risky,” Catalan lawmaker Josep Duran i Lleida told Parliament in Madrid yesterday. Ana Maria Oramas, a lawmaker from the Coalicion Canaria who supported the last budget, said yesterday she understood Zapatero’s term will end in September and today wished him well in his personal life after leaving office.

Zapatero, struggling to shield Spain from the contagion of the Greek sovereign-debt crisis, won’t seek a third term after his party’s worst local election defeat in three decades last month. The Socialists are seven seats short of a majority and if the budget fails, tradition calls for an election even, though the government can revert to the previous year’s spending plan.

“By September, the markets may not allow them to roll over the budget,” said Ken Dubin, a political-science professor at Carlos III University in Madrid who also teaches at the IE business school. “The results of the local elections definitely increased the chances of early general elections.”

Zapatero’s Response

The dissent against Zapatero emerged during yesterday’s state of the nation debate. Josu Erkoreka, a lawmaker for the Basque Nationalist Party that has also been an ally of Zapatero’s government, ended his speech in Parliament by wishing Zapatero “all the best.”

Zapatero had repeatedly said he wants to complete the term. He said yesterday that the “logical” aim of any government is to serve a full four-year term, though he didn’t rule out an early vote as the date depends on “dialogue” with other parties.

Failure to get an austerity plan through Parliament in March pushed the Socialist government of neighboring Portugal to call early elections, prompting a surge in borrowing costs that forced the outgoing government to seek a European bailout.

The extra yield on Spain’s 10-year bonds compared with German equivalents narrowed 8 basis points to 262 basis points today after Greece’s government secured enough votes to pass the first part of an austerity plan needed to prevent a default. Spain’s benchmark 10-year bond yield had risen this week to the highest since 2000, swelling the burden on public finances.

Early Vote

Mariano Rajoy, the leader of Spain’s opposition People’s Party, also reiterated calls in the debate yesterday for an early election, which polls show he would win after seven years of Socialist rule. The PP would clinch 45.9 percent of the vote if general elections were held now, according to a poll published by the newspaper El Mundo on June 5, compared with 32.1 percent for the Socialists, who will be led into the election by Deputy Prime Minister Alfredo Perez Rubalcaba.

Rosa Diez, a lawmaker for the UPD party, also called for the election to be brought forward today. As the second-day of the debate concluded, parties started drafting proposals that will be voted on tomorrow.

As lawmakers spoke in Parliament, protesters known as the “indignant ones” called their own version of the state of the nation debate in central Madrid today. Demonstrators camped out at the Puerta del Sol square for a month through mid-June to protest against corruption, austerity measures, bank bailouts and rules for mortgage-holders who risk losing their homes.

Policy Reversal

The Socialist premier, who boosted pensions and benefits during the last years of Spain’s decade-long real-estate boom, made a policy U-turn last year amid a surge in borrowing costs, raising the retirement age and slashing public wages. He also angered his traditional allies in the unions with reductions to firing costs and a wage-bargaining law that aims to make it easier for exporters to compete.

Zapatero’s party on May 22 was trounced in regional elections and lost its traditional strongholds of Castilla-La Mancha and Extremadura after 30 years of Socialist rule.

Zapatero, who says he wants to complete his term to be able to steer the economy back to growth, used the debate to propose new spending rules for the regional governments, as he said there were “uncertainties” about their finances. Moody’s Investors Service said yesterday that regions risk “downward pressure” on their ratings if they don’t take “further steps” to strengthen their fiscal position.

Home Foreclosures

He also announced measures to ease pressure on homeowners facing foreclosures amid the highest unemployment rate in Europe and said the government would study ways of preventing “abuses” when foreclosed homes are auctioned.

Under Spanish law, if a foreclosed property is sold for less than the outstanding mortgage, the bank can claim the difference from the borrower against all present and future assets and earnings. The government will increase the amount of monthly income that is shielded from seizure by creditor banks to 961 euros ($1,383) from 705 euros, Zapatero said.

Amid calls in nationwide protests and from opposition lawmakers for homeowners to be able to cancel outstanding debts by handing over their keys, Zapatero said the measures “will be compatible with the imperatives of financial institutions’ solvency and legal security.”

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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