Spanish government breaks legislative deadlock with Catalan ally

By David Latona

MADRID (Reuters) -Spain's minority government on Tuesday reached a deal with the Catalan separatist party Junts to approve several economic measures in parliament, breaking a deadlock that has raised doubts over its ability to pass any legislation.

The agreement could bode well for this year's budget bill, which is yet to be presented by the administration of Socialist Prime Minister Pedro Sanchez. In the meantime, Spain is rolling over its spending plan from 2023, as it did last year.

Sanchez said the deal includes an increase in pensions, relief funds for the Valencia area that suffered from deadly floods in late October, and a six-month extension of public transport subsidies, which were part a bill rejected by parliament last week.

"We've sweated until the very end and ultimately, things are moving ahead for the benefit of the social majority ... Dialogue, negotiation and agreement are the signs of identity of my governments," Sanchez told reporters, expecting the legislation to be approved by a sound majority.

In a statement, Junts confirmed the agreement, but said it excluded all tax measures - which would be "negotiated further down the line".

Fiscally conservative Junts has opposed the extension of a windfall tax on energy companies, among others, arguing that the levy impacted investments in the wealthy Catalonia region.

Sanchez's centre-left administration faces a balancing act in every vote as it weighs concessions to parties from across the spectrum with opposing demands, such as hard-left Podemos and centre-right Junts.

Junts leader Carles Puigdemont earlier this month said his party would not support the government unless a "trust crisis" between them was resolved.

In December, Junts introduced a measure urging Sanchez to submit to a motion of confidence, which he initially dismissed, as the prime minister can constitutionally choose to ignore parliament's non-binding request.

Tuesday's deal with the Catalan party contemplates the lower chamber debating the initiative requesting Sanchez be held to the condidence motion.

Asked if he would submit to such a motion, Sanchez said he saw "no need to do so".

(Reporting by David Latona, Joan Faus, Inti Landauro and Emma Pinedo; Editing by Andrei Khalip)

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