• Economy Brussels reveals that Spain does not report its largest recipients of funds, despite the fact that ten countries have already done so

Brussels sees some clouds on the horizon, a deficit and above all a much higher debt than desirable, gaps in the implementation of concrete recommendations of recent years and risks if energy prices rise again or if tourism suffers setbacks again. But he believes that if Spain sticks to what it promised, completes what it has announced without surprises and keeps public spending under control, below 2.6% of GDP in 2024, the forecasts of its macro picture ("realistic for, but optimistic) should be fulfilled, paving the way to get out of the category of permanent imbalances in which we have been since 2012.

This is reflected in the documents published this Wednesday within the so-called Spring Package, in which the European Commission evaluates the Stability Program and the National Reform Plan, sent by Spain and the rest of the member states on April 28. "It is concluded that Spain is experiencing macroeconomic imbalances. In particular, the vulnerabilities linked to high public, government and foreign debt, although they are decreasing, are still present," it reads. And that is why it asks that our country use the money that will be saved thanks to the gradual disappearance of widespread aid in the face of the pandemic and the war in Ukraine to consolidate public accounts as soon as possible, without having to reduce investment, necessary for green and digital commitments.

The Council regulations provide for an annual improvement in the structural balance in order to move towards a medium-term benchmark of 0.5% of GDP. "Taking into account considerations of fiscal sustainability and the need to reduce the deficit below the reference value of 3% of GDP, an improvement in the structural balance of at least 0.7% of GDP by 2024 would be appropriate," says the paper, just over 9,000 million euros in our case, the same percentage as for other highly indebted countries, like Italy or Belgium.

Spain already contemplates these adjustments in its path to go from 3.9% of the deficit that it estimates at the end of 2023 to 3% of 2024, which would avoid problems with the new fiscal rules as the maximum threshold is allowed. But it also relies a good part on growth, because the result is still a ratio. But Brussels is focusing more on the leading indicator for the future. "To ensure such an improvement, net primary expenditure growth in 2024 should not exceed 2.6%," says the recommendation to Spain. "At the same time, the remaining energy support measures (currently estimated by the Commission at 0.6% of GDP in 2023) should be phased out, depending on energy market developments and starting with the less targeted ones, and the corresponding savings should be used to reduce the government deficit," they urge.

In principle it should not be a problem, since that margin of 2.6% is double that of Italy and even higher than that of Germany. As the analysis below says: "assuming no policy change, the Commission's spring 2023 forecast projects that nationally financed net primary expenditure will grow by 1.4% in 2024, below the recommended growth rate." But of course, it is an election year, both at the municipal, regional and national level, and that always lends itself to surprises, announcements and more promised spending. And the drafting of the 2024 Budget will arrive almost in the campaign.

"The European Commission confirms that the fiscal path presented by Spain will comply with the fiscal requirements demanded for 2024. The fiscal responsibility of the Government and the growth forecasts of the Spanish economy guarantee the sustainability of the public accounts in the coming years. The Stability Program includes the advance to 2024 of the reduction of the deficit to 3% of GDP and the debt below 110% of GDP, "they say from the Ministry of Economy.

This is the last special year in the analyses of the institutions. After freezing the Stability and Growth Pact since the start of the pandemic in 2020, the rules will be active again from 1 January. If all goes well, new rules that are being negotiated right now, and that would allow more flexibility and personalized adjustment paths to each country, giving it more responsibilities, but in any case rules, with the return of excessive deficit procedures, pressure and, in fact, more realistic and effective sanctions, since the entire current punitive framework has never been applied to the end, for it was too onerous, both in financial and political terms.

The report published today, on Spain's implementation of the recovery and resilience plan and past recommendations, identifies "gaps with respect to those challenges that are not addressed or only partially addressed in the recovery and resilience plan, as well as new and emerging challenges".

From 2024, spending will be one of the main indicators for the evaluation, leaving behind more cyclical issues, since the indicator does not take into account interest payments on debt or automatic stabilizers, very sensitive in times of crisis. Analysing that of Spain, the Commission highlights that the growth in primary current expenditure (net of new revenue measures) represented an expansionary contribution of 2.7 percentage points to the so-called fiscal position.

"This important expansionary contribution included the additional impact of fiscal policy measures to mitigate the impact of higher energy prices, which had an additional net budgetary cost of 1.5% of GDP. At the same time, higher intermediate consumption expenditure and social transfers in kind also contributed to the growth in net primary current expenditure. Spain, therefore, did not sufficiently limit the growth of current expenditure on domestic financing," the report says.

But the Commission also believes that if the paths remain on the current lines, Spain, which in 2012 entered the Excessive Deficit Procedure and did not leave until many years after the so-called corrective arm, could in 2024 leave that category. "Vulnerabilities are receding in Germany, Spain, France and Portugal to the extent that the continuation of these trends next year would trigger a decision of no imbalances," the document says. "The Commission anticipates that in 2024 Spain will be part of the group of countries (which also include Germany, France and Portugal) that do not present macroeconomic imbalances, for the first time since 2012," they celebrate from the Ministry.

This will be the last year of generalities. Historically, country-specific recommendations are very in-depth, addressing all facets of the economy, but by continuing with the Stability Pact in an induced coma, procedures have changed. In 2021 and 2022 there were only qualitative comments, general recommendations, such as deactivating exceptional measures, focusing on vulnerable groups and reducing spending growth. But now, as a transition, the lines are already marked by putting some numbers as well.

In general, Brussels does not seem very worried, much less than in the last decade, but it points to the main weaknesses. "The financial system showed resilience in the face of recent shocks induced by the pandemic and the energy crisis. Unemployment has fallen again, but it still remains high and there are elements of vulnerability, including very high youth and long-term unemployment," the review says.

"The potential risks to further reducing vulnerabilities relate mainly to the impact of tighter financial conditions for households and firms, as well as to the medium- and long-term sustainability of public debt in the face of current market conditions and population ageing. Progress has been favourable and continuing with the implementation of the Recovery Plan with the Next Generation funds should generate further improvements," concludes Brussels.

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