Rift with Catalan separatists will not threaten budget plans, Madrid says

By Charlie Devereux and Joan Faus

MADRID/BARCELONA (Reuters) - Discord between Spain's ruling Socialists and Catalan separatists over a controversial amnesty bill will not derail the government's budget plans, the budget minister said on Wednesday, amid fears of paralysis if a deal cannot be reached.

Hardline separatist party Junts on Tuesday blindsided the government by voting against the bill it had sought from the Socialists (PSOE) in return for backing them following inconclusive elections last July.

"We have to let things calm down," minister Maria Jesus Montero said in an interview on RTVE. "We are confident about reaching agreements with them, such as on the budget."

Junts said it would retract its support if the government failed to expand the scope of the bill.

"What we agreed with the PSOE was to resolve a political conflict and the foundation was an amnesty law," Junts' secretary general Jordi Turull told Catalan radio station RAC 1. "If that foundation breaks, then there is no need anymore to get to the rest of the issues."

The amnesty would cover people involved in Catalonia's failed independence bid that came to a head in 2017, including separatists but also police involved in clashes with activists.

The Socialists and Junts now have as much as a month to negotiate further but Tuesday's vote shows the fine line Prime Minister Pedro Sanchez must walk between making concessions to ensure the survival of his government and enraging a public already angry at his pact with the protagonists of Spain's most serious political crisis in the past three decades.

Judges have already warned the bill could imperil the rule of law and Spain's main business chamber said it risks the country's image abroad, while legal action threatened by the opposition conservative People's Party means the government must ensure its legislation can withstand such challenges.

'TSUNAMI DEMOCRATIC'

The PSOE and the separatists agreed last week to tweak definitions of what can be considered a terrorist act, but Junts now wants all references to terrorism removed since some of its politicians are under investigation over such crimes.

Judge Manuel Garcia-Castellon is weighing terrorism charges against pro-independence protest group Tsunami Democratic over a 2019 raid on Barcelona airport that could implicate Junts leader Carles Puigdemont.

Rejecting the bill strengthens Junts' hand, giving them more time to push further concessions, said Pablo Simon, a political science professor at Madrid's Carlos III University.

A Junts source said it would again vote down the bill if it did not protect key figures, but also rejected teaming up with the opposition in a confidence vote against Sanchez.

"We think they will budge and we will too. For us this is the red line in the legislature. If there's no amnesty, the pact no longer make sense," the source said.

(Reporting by Joan Faus and Charlie Devereux; Writing by Charlie Devereux, editing by Aislinn Laing)