MADRID - Spain's governing Socialists won approval for a 15 billion euro ($18.4 billion) austerity package by just one vote on Thursday, avoiding a defeat that would have rattled markets and potentially brought down the government.
The close vote highlights the pressure on Prime Minister Jose Luis Rodriguez Zapatero, forced to go against traditional allegiances by pushing through spending cuts and labor reform as markets fret Spain could suffer a similar crisis to Greece.
The bill was approved by 169 votes in favor to 168 against, after the opposition Popular Party voted against, even making sure one of its deputies was brought to the session in an ambulance to highlight its opposition to the measures.
The austerity plan is a key plank in the Socialist government's efforts to cut the large budget deficit and restore confidence in Spain's ailing economy, which has barely edged out of recession after two years. It has the euro zone's highest jobless, at 20 percent.
"It is a potentially massive pitfall avoided but it still leaves us with all the other known problems in Europe and Spain (weak growth, labor unrest, financial system, real estate issues to name some of them)," said Dirk Schnitker, international equity analyst at CM Capital Markets Bolsa.
The bill was only saved when 10 deputies from center-right Catalan nationalists CiU abstained after criticising the bill, saying they did not want Spain to be plunged into a Greek-style crisis.
But CiU said they would not support the 2011 budget bill, raising doubts over how Prime Minister Jose Luis Rodriguez Zapatero will be able to continue to steer his country through a time of crisis.
The Prime Minister called off a scheduled trip to Brazil on Thursday to keep a close eye on domestic matters during a crucial week with a end-May deadline looming for an agreement with unions and business for wide-ranging labor reform.
CiU leader Josep Antoni Duran i Lleida told parliament Zapatero should call early elections next year.
"The problem is you and your government," he told Zapatero.
History professor Charles Powell of CEU San Pablo University said it was unlikely Zapatero should be shunted out before the end of the year, and pointed out no Spanish government has been voted out of office since the start of democracy in 1978.
But he stressed the extraordinary strain faced by Zapatero as he deals with international pressure to bring Spain's yawning budget deficit under control as part of a push for eurozone stability, while pacifying unions and minority parties at home.
United States President Barack Obama and German Chancellor Angela Merkel have spoken personally to Zapatero, urging for reforms over concerns of potential contagion from the failure of an economy more than three times the size of Greece's.
"That's when he realized that his room for maneuver was shrinking fast," said history professor Power.
May 2012 is the latest date for the government to call elections, although most commentators expect general elections in 2011. The conservative opposition Popular Party (PP) is well ahead in opinion polls.
The PP say the austerity package is made up on the hoof and shows the complete incompetence of the Socialist government.
"This law is improvised, insufficient and unjust," PP leader Mariano Rajoy told parliament.
The government's plan aims to save an additional 15 billion euros and includes wage cuts of 5 percent for civil servants this year. It aims to cut the budget deficit to 9.3 percent of gross domestic product this year and then to 6 percent in 2011, down from 11.2 percent last year.
However, a return to economic growth and reduction of Spain's massive public deficit will be impossible without profound structural reforms of an economy that had grown too quickly on an expanding property bubble and cheap credit.
Spain's government has given tripartite talks with unions and business leaders until the end of May to agree on long-awaited reforms to the structure of the labor market.
Analysts see the shaking up of the country's inflexible labor laws and the easing of hiring and firing as vital to go some way toward restoring the country's competitiveness and a return to growth.
"The labor reforms are crucial. They will help to restore growth in the long term. Growth is the only way out of these adverse fiscal trends," said Luigi Speranza, analyst at BNP Paribas.
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