Budgets 2021: Brussels supports the Budget of Spain, but warns of the risks of high debt | Economy

The European Commissioner for the Economy, Paolo Gentiloni.
The European Commissioner for the Economy, Paolo Gentiloni.John Thys / AP

Open hand but touch of attention. Brussels has given the green light this Wednesday to the draft of the Budgets of Spain, which in its opinion contains the package of measures for the most modest economic recovery in the euro zone. However, the European Commission has warned the Government of Pedro Sánchez of the “risks” that its high public debt, which will climb to 120.3% of GDP this year, entails the sustainability of its public finances in the medium and long term . Brussels also warns Spain that the pandemic is accentuating the economic imbalances that it was dragging and draws its attention due to the rapid increase in youth unemployment, which has shot above 40%.

The European Commission has published this Wednesday the result of the economic and fiscal examination to which it submits each autumn to the member countries, with which it intends for them to undertake fiscal adjustments and structural reforms. The sudden economic collapse that the EU has suffered, however, led Brussels to give the capitals a free bar to support their economies and companies. The Commission and the Council therefore decided to bypass the fiscal recommendations and focus on the fight against the pandemic on three fronts: the health emergency, the protection of employment and liquidity for companies. “The priorities are very clear. First, to continue with short-term policies that address the crisis and support the recovery ”, stated the Commissioner for the Economy, Paolo Gentiloni. Of course, the Commission has asked the capitals for prudence to return to fiscal stability when the recovery is complete.

The Community Executive has considered that all the budget drafts, also the Spanish one, are “in line” with the fiscal policy recommendations. On the floor, a full-fledged general approval. “The Commission is of the opinion that the draft budget plan for Spain is generally in line with the recommendation adopted by the Council”, since Brussels believes that “most of the measures” included in the draft that the Government sent it in October are oriented to “support economic activity in a context of considerable uncertainty.” However, the communication approved by the Community Executive suggests that, compared to other countries, Spain is running out of ammunition to pave the way for economic recovery, despite being the second largest beneficiary of the European reconstruction fund.

Slovakia, Austria, Lithuania and Ireland are the countries whose accounts contain the most measures to combat the emergency and support the economy in 2021 by employing an arsenal of up to 5% of their GDP. At the other extreme are Belgium, Cyprus and Spain, which closes the list of the 19 countries of the euro zone despite being the second largest recipient of resources from the European recovery fund with 59.088 million in subsidies. Even with record budgetary spending, Spain cannot dedicate more than 1% of GDP to underpin the recovery.

In fact, the Commission believes that the greatest effort could have already been made in 2020, when around 4% of GDP (5.5% of GDP, according to the government) has been earmarked to combat the crisis, the third largest effort of the euro zone only after Lithuania and Italy. Among these measures would be the resources destined to defray ERTE, emergency funds to tackle the health crisis, support for the most vulnerable groups or postponement of taxes.

The bad place that Spain occupies in the 2021 photograph has to do, according to Brussels, with the gradual withdrawal of protection measures such as temporary employment files (ERTE), which are not included in the Budgets, or in support of companies . Spain has been one of the most active countries in 2020, tending that safety net to its companies, although it has opted for guarantees and endorsements. Germany has opted instead for subsidies. And the latest data from Competencia suggest that Berlin could have reserved the greatest firepower to face possible new waves of infections. In any event, the Commission admits that it still does not have exhaustive information on the recovery plan that the Government is preparing. The draft also contemplated raising salaries for civil servants or indexing pensions to the CPI, but Dombrovskis was not concerned, since Spain is not among the countries that have adopted more permanent measures in their budgets.

Under surveillance for imbalances

Even though the fiscal rules are suspended de facto This year and next (and the Commission is even talking about keeping them on hold in 2022), Brussels is giving Spain a touch so that the pandemic does not end up overflowing its public finances. “It is important for Spain to ensure that, by adopting supportive budgetary measures, it preserves sustainability in the medium term”, points out the Commission, adding: “Spain is invited to periodically review the use, effectiveness and adequacy of the measures of support and being prepared to adapt them if necessary to changing circumstances ”. That same warning has the usual suspects: Belgium, France, Greece, Italy and Portugal.

The Commission has also decided that Spain remains within the group of 12 countries that deserve to be under the scrutiny of the Community Executive due to their macroeconomic imbalances. It is not within the three that require maximum vigilance (Italy, Greece and Cyprus), but it is within the nine that must continue to improve for one reason or another: Croatia, France, Germany, Ireland, the Netherlands, Portugal, Romania and Sweden. The effects of COVID-19 will be felt in an increase in corporate, family and public sector debt. And the most indebted countries, the Commission adds, have found that COVID-19 has caused their tourist income to fall, damaging their foreign position.

Brussels also warns that Spain could have already been experiencing a decline in house prices in 2019, an increase in non-performing loans and a further deterioration in the labor market. “In summary, the COVID crisis seems to reinforce existing patterns within the euro area with respect to economic and national divergences and external indebtedness,” the Commission report emphasizes.