Joint pact firmly commits Spain to single currency

Date: 02/05/1996

By Pedro Lopez de Pablo

THE leader of the Partido Popular (PP), Jose Maria Aznar, will finally be invested as prime minister of Spain this weekend after 55 days of negotiations with Catalan leader Jordi Pujol.

The deal struck between Aznar and Pujol paving the way for a new government includes three priority objectives: “the modernisation and deepening of the state”, the establishment of an economic policy aimed at creating jobs, and Spain's integration into monetary union.

The first covers Catalonian aspirations to autonomy, envisaging the creation of a new financing system which would allow semi-autonomous regions such as Catalonia to retain 30&percent; of the income tax collected there (twice as much as current regulations allow).

The second aims to tackle Spain's main economic problem - unemployment - which, at 23&percent;, remains the EU's highest.

And the third - achieving monetary union in 1999 - foresees rigorous measures and a reduction of the public deficit.

Dethroned Socialist leader Felipe González and trade unions are waiting for Aznar's investiture to launch their first salvo against the new premier.

The key question on their lips will be just how much Aznar's deal with Pujol will cost the country's social security system and to what extent it will destroy the traditional solidarity between Spain's rich and poor regions.

Aznar will try to respond to these issues in a way which will reassure financial markets that Spain will get its economy healthy enough to be among the first group of EU countries moving to a single currency. At the same time, he must promise union leaders that no changes will be made without their consultation and nothing will endanger the country's generous system of social benefits.

To maintain this difficult equilibrium, Aznar has chosen Rodrigo Rato, the man who negotiated the deal with Catalonia, as finance minister. Signalling continuity in Spain's policy towards the EU, Aznar has selected former European Commissioner and MEP Abel Matutes as his foreign minister.

Aznar comes to power with Spain in better economic and social shape than when González first took office 13 years ago. But the stability of the new government will depend on a pact whose functioning will be judged daily in Catalonia and on the strength of political opponents whose ranks include the country's most experienced politicians.