Brussels asks Spain for a “credible” fiscal strategy in the medium term

After raising the growth forecast for Spain in 2023 to 2.4% barely a week ago and lowering that for 2024 by two tenths (to 2.7%), the European Commission this Tuesday gave its approval to the extension of the Spanish budget for the next financial year and has asked the new Government to present a “credible” fiscal strategy in the medium term.

The analysis document, which is part of the autumn package presented by the European Commission, makes it clear that Spain’s draft budget “does not include budget projections beyond 2024.” It thus fails to comply with the Ecofin recommendations of last July that required the Government to pursue “a medium-term fiscal strategy of gradual and sustainable consolidation”, which is combined “with investments and reforms” to achieve “a prudent fiscal position in the medium term”.

EU countries had until October 15 to present their draft budget, a deadline that led to extending the 2023 budgets with a government in office. Despite this, community sources point out that Spain will have to present a “credible medium-term fiscal strategy.”

Brussels requests details of the anti-inflation measures that the Government will implement next year and greater clarity on the budget items, according to community sources. According to his analysis, and as he has repeated on occasions, he expects Spain to withdraw all support for high energy prices at the end of the year and to use such savings to reduce deficit levels, which will exceed levels of 3% at least. until 2025, which adds to a high debt.

According to the European Commission’s analysis, Spain will comply with the recommendation to continue with a “prudent fiscal policy” next year, in accordance with the budget extension. It would comply with the July Ecofin recommendations of limiting the increase in net spending to a maximum of 2.6%, otherwise it would have to make a budget adjustment of 9.7 billion. In fact, Brussels estimates that this increase will be 2.1% next year, that is, below the recommended ceiling.

Last week’s investiture of the socialist leader, Pedro Sánchez, as President of the Government means that this evaluation must be updated once the new Spanish Executive sends its new budget plan for 2024 to Brussels. The evaluation of the European Commission will have no repercussions real in this case, although Brussels has urged Spain to send new budgets “as soon as possible.”

It is important to take into account in this analysis that the fiscal rules that establish that countries must not exceed levels of deficit over GDP of 3% and debt of 60%, and that were suspended due to the pandemic, will be applied again next year. . Brussels already warned last May that, even if the fiscal rules were not in force, it would be pending the accounts at the end of 2023.

Thus, pressure increases for a return to fiscal discipline. If this suspension of economic governance, through the activation of the escape clause, has prevented the Community Executive from opening excessive deficit procedures to countries during these years, this reservation will disappear starting next spring.

The Community Executive, like the Eurogroup, has been calling on countries for months to adopt a prudent fiscal policy. The idea is that it is not counteracted by the tightening of monetary policy, with the increase in interest rates undertaken by the European Central Bank. But it also has to do with the measures implemented to mitigate high energy prices, which the Community Executive insists must be specific, focused and limited in time.

The focus on energy measures for a year

With a marked difference compared to the years of the economic crisis, Brussels’ analysis of last year’s Spanish budget plan obtained a positive assessment. It was in line with the community recommendations to limit the increase in public spending, although it already warned about energy measures, which should focus only on the most vulnerable, because it would contribute to an increase in current spending and an increase in the deficit and debt in 2023. .

However, he issued a warning to Spain due to the risks derived from the high level of public and private debt and high levels of unemployment. All of them elements that have been recurring among the main challenges of the Spanish economy.