31/08/2011 - The OECD welcomes the announcement by the Spanish government last Friday August 26th about having agreed with the opposition parties in Parliament to enshrine a set of deficit limits in the Constitution. The draft law, scheduled to be adopted by Parliament by June 30th, 2012 at the latest, envisages a maximum deficit limit of 0.4% of GDP for the combined state and regional governments along with a balanced budget requirement for Local governments. It also includes rules for the progressive reduction of debt in line with the European Union’s Stability and Growth Pact. One should remember that Spain’s public debt as a percentage of GDP is only 66 compared to an OECD average of 98 per cent.
This initiative complements Spain’s comprehensive policy response to the global financial crisis.
Specifically, on July 21st of this year Parliament approved a reform of the pension system to raise the legal retirement age from 65 years to 67. It subsequently approved an expenditure rule for the state and local government levels in the pursuit of greater fiscal discipline. Progress has also been made to bolster the system of savings banks – including a substantive cut in the number of institutions and an improvement in their cost structure, capital base and governance. To facilitate the required massive shift of resources towards exporting industries and rein in high unemployment, labour market reforms adopted in 2010 include inter alia an enhanced possibility of opt-outs from sector-wide collective agreements, more flexible rules for dismissal on economic grounds and enhanced room for temporary work and private recruitment agencies.
The OECD stands ready to support the Spanish government in this crucial period when the government will be implementing these reforms and expects that financial and credit markets, economic analysts and observers will fully incorporate them when appraising Spain’s economic future.