US embassy cable - 04MADRID4753

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