Great! Spain´s two main political parties will try to reach an agreement; both are in favor of adding a budget stability rule to the constitution. Despite all the fanfare generated by the proposal, Zapatero has just confirmed that it would be applied in 2018 and Rajoy could also enjoy two terms in office without this fiscal corset.
Despite dealing with a distant solution, the agreement could be ready in a couple of weeks.
What has happened to president Zapatero that he´s dead set on Keynesian stimulus? Is he having an allergic reaction? While the initiative is being pushed hard by German chancellor Angela Merkel, who is demanding stronger austerity guarantees, it will make account trajectories more predictable and inspire greater confidence in investors, especially if it has backing from both major parties.
Remember that the Populist Party already approved a budget stability law and the current government made changes so they could break it.
And on more than one occasion we have seen how Spanish government made a mockery of the constitution, taking advantage of the fact that the constitution is much politicized.
This new "golden rule" would have to be enforced with tough and trustworthy sanctions. Right now Zapatero is getting off scot free for putting our country in debt and passing the hot potato to the next administration. At least the next regime will have to provide some explanations for the account discrepancies. Further, it needs to end regional and municipal entities created for the sole purpose of building up debt without putting it on the books.
It is a pity that this willingness to provide a solution is not going to be extended to other issues, as was observed throughout the rest of the debate yesterday. Both parties remain entangled in a war of warriors that could be just fine on election day, but proves useless for a country that needs consensus and progress. Looking at the horrendous policies applied within the real estate market proves this.
When the Partido Popular (PP) announced that it would re-establish tax cuts for homebuyers, potential buyers were holding back on purchases. So the government tried to respond by lowering the VAT. Rajoy himself has lowered demand by announcing that he would prolong the lower VAT rate. Instead of galvanizing a price change that could help repress salaries and in doing so be more competitive without reducing purchasing power, the policy consists of trying to prop up prices. But for whose benefit?
In order to get to finish its term in office without liquidity problems, Zapatero?s government (which has spent like there?s no tomorrow) is now trying to collect advance tax revenues from public limited companies. And it will pocket espectro radioelectrico telecommunication rights for 50 years, in effect taking revenues from the next government.
On top of that, Zapatero has not provided any meaningful changes besides lowering the price of prescription drugs. With this issue as in others, the current administration is not talking about how to service debt responsibly and sustainably. Zapatero is leaving a legacy of economic hardship, and his successors will have to deal with it.
The big question is whether the electorate will be sufficiently immune to populist economic policy and if the Spanish Socialist Workers Party will take to the streets or not when the PP has to put up with extreme cutbacks.
