SPANISH BUDGET VETOED IN THE SENATE AS EXPECTED

UNCLAS MADRID 004753

SIPDIS

TREASURY FOR TRACI PHILLIPS

E.O. 12958: N/A
TAGS: EFIN ECON SP
SUBJECT: SPANISH BUDGET VETOED IN THE SENATE AS EXPECTED

REF: MADRID 4385


1. Summary. Spain's Senate vetoed December 13 the Socialist
government's 2005 budget. The budget, which already passed
the lower house, will now be returned for further
consideration. The lower house may pass the budget over the
Senate's objections next week by an absolute majority, or by
a simple majority in two months time. This act marks the
first time Spain's Senate has returned a budget to the lower
house. End Summary.


2. The Popular Party and three nationalist parties joined
forces to reject the government's budget December 13 with a
vote of 140-117. The budget will now return to the lower
house for reconsideration for the first time in Spanish
history. The lower house will review the budget next week.
The minority Socialist government can pass the budget over
the Senate's objection if it can maintain the absolute
majority it had on the first reading of the budget in the
lower house. If the lower house fails to pass the budget
next week, it can be passed by a simple majority in February.
The government would continue to operate in January and
February based on one-twelfth of 2004 budget numbers each
month.


3. The Socialist government negotiated an absolute majority
in the lower house where it holds the largest number of
seats. It received the support of the Republican Left of
Catalonia (ERC) and the communist United Left (IU) when the
budget passed the lower house.


4. The Socialist government faced a different situation in
the Senate, where the opposition Popular Party (PP) holds the
most seats. In order for the government to pass a law in the
Senate, it requires the support of all non-PP parties.
Minister of Economy and Finance Pedro Solbes opposed
additional negotiations with regional parties in the Senate
that were not allies in the budget passage in the lower
house. The opposition PP joined with Catalonia's Convergence
and Union, the Galician National Party, the Basque
Nationalist Party, the Canary Coalition and the Mixed Party
Senator to embarrass the government with the veto. The PP
economic spokesperson in Parliament offered no substantive
objections to the budget, but commented that the Senate's
veto shows this government's weakness. A contact in the
Ministry of Economy rejected that analysis, noting that
Solbes stuck to his spending limits, and by not negotiating a
face-saving deal with regional parties in the Senate, proved
that he is a strict budgetary guardian.


4. Comment. The historic veto of the Socialist government's
first budget may amount to little more than parliamentary
bickering and the opposition's attempt to embarrass its
political rival. Contacts at the Ministry of Economy and
Finance predict that the government will have the votes to
pass the budget next week over the Senate's objections. The
important message coming out of the Spanish budget debate is
that Minister of Economy and Finance Pedro Solbes has the
will to maintain budgetary spending limits. Solbes preferred
that the Socialists accept the embarrassment of a Senate veto
to meeting additional budgetary demands of regional parties.
This budget year, the Socialists will be able to maintain the
support of their alliance with ERC and IU in the lower house
to pursue a conservative fiscal policy. The question is
whether Solbes and the Socialist government will be able to
maintain this alliance in the coming years under less rosy
economic conditions.
MANZANARES