Brussels warns Spain of a difficult fiscal situation and demands new budgets “as soon as possible”

Brussels already has its evaluation of the budget plans for 2024, an analysis in which it warns that the fiscal situation in Spain will be “difficult.” This Tuesday, the European Commission endorsed the budget extension presented by Spain and asks the new Government to submit an updated draft “as soon as possible.”

According to the update of the economic forecasts of the Community Executive last week, Spain will exceed the deficit limits until 2025. Specifically, it will close the year with a deficit over GDP of 4.1%, to drop to 3.2% in 2024 and increase again to 3.4% in 2025. “The key message is that the fiscal situation is difficult,” community sources have reported, taking into account that the debt will also continue at high levels. For this reason, the same sources urge Spain to establish a medium-term fiscal strategy that is “credible.”

Specifically, Brussels points out that the draft budgets for 2024 of Spain, Greece, Ireland, Slovenia, Cyprus, Estonia, Lithuania and Estonia, “are in line with the 2023 Council recommendations.” Although it specifies that the plans of Spain, as well as those of Slovakia, Luxembourg and the Netherlands, have been submitted by acting governments. Therefore, Brussels has only received an extension of the budgets in a scenario in which it is taken into account that the measures to contain high energy prices would end in 2023. Such budget extension is based on a scenario in which that there is no change in policies and that Spain complies with Brussels’ repeated recommendation to eliminate energy measures at the end of the year.

Thus, the Community Executive demands that Spain present an update of the budget plan “as soon as possible.” Already during the investiture speech, the President of the Government, Pedro Sánchez, announced an extension until the end of June of some of the anti-inflation measures, such as the reduction in VAT on food or free public transport, two of the measures that most resources absorbed from the state budget.

It is true that Brussels has extended six months the measures to contain high prices of energy, however, are restricted only to providing support to companies and their purpose is limited to facing the next cold season to avoid a loss of competitiveness.

According to the figures from the European Commission’s autumn forecasts, Brussels could open excessive deficit procedures next spring to nine euro countries, including Spain, according to community sources. In 2024, the fiscal rules suspended by the pandemic will be re-applied, limiting countries’ deficits to 3% and debt to 60%. With the reform of the fiscal rules still to be finalized, Brussels already warned the EU countries six months ago: in the spring of next year it will open procedures for excessive deficit, also taking into account the accounts at the end of 2023. An exercise which will be based on updated data published by Eurostat.

In an analysis of the rest of the EU economies, the European Commission has concluded that the countries that do not fully comply with the Council’s recommendations are Austria, Germany, Portugal, Italy, the Netherlands, Luxembourg, Latvia, Malta. A more serious case is that of France, Belgium, Croatia and Finland, to whom Brussels highlights the risk they run of not complying with such recommendations.

Warns of macroeconomic imbalances to Spain

The autumn package of the Community Executive warns of macroeconomic imbalances in twelve member states, among which is Spain. In-depth reviews will also be carried out in Germany, France, Greece, Italy, the Netherlands, Portugal, Cyprus, Hungary, Romania and Sweden, to determine whether the imbalances detected a year ago are worsening, being corrected or have been remedied.

“Prudent” fiscal policies for euro countries

In the presentation of the autumn package of the European semester, the European Commission has reiterated to the euro countries the need to adopt prudent and coordinated fiscal policies. He has also insisted that they withdraw the energy measures. Two recommendations that seek to improve the sustainability of public finances and avoid fueling inflationary pressures.

Precisely in an attempt to avoid the loss of purchasing power of citizens, the Community Executive recommends the Twenty to improve salaries, taking into account the dynamics of competitiveness. It also calls for monitoring the risks related to the tightening of financial conditions, following the increase in interest rates by the European Central Bank, while completing the banking union.

In its autumn package, Brussels repeats one of the lines mentioned a year ago and asks euro countries to maintain high and sustained levels of public investment and boost private investment through the implementation of the Recovery Plan and policy programs of Cohesion.

Furthermore, in an attempt to boost competitiveness, it focuses on improving access to finance, advancing the capital market union, and ensuring support for strategic sectors that is focused and does not create distortions in the single market.