Sánchez must approve a fiscal adjustment of 22,000 million in three years to comply with Brussels

The President of the Government faces the challenge of applying order to the accounts imposed by the new fiscal rules, which will require adjustment measures worth 22 billion until 2026. The commitment with Brussels requires reducing the deficit to 3% in 2024 , a challenge that will force Pedro Sánchez to impose an additional adjustment of 5,000 million euros, according to Funcas calculations. The scenario is complex. The Head of the Executive chose – at the end of 2023 – to ignore the advice of the European Commission and apply a gradual – and not total – withdrawal of the anti-crisis measures.

The socialist’s maneuver narrowed Moncloa’s margin to comply with Von der Leyen’s, so the Government will have to dig – now – into the Treasury drawer to apply extraordinary cuts. Sánchez has the asset of the General State Budgets for 2024, which his Executive expects to have between the months of June and July, despite the second setback that the fiscal path – on which the accounts will be based – has suffered in the Senate at the hands of the absolute majority of the Popular Party. The team led by the first vice president, María Jesús Montero, must select the items from which the necessary adjustment is made, while the president’s team will have to juggle to satisfy the tangle of parliamentary groups necessary to carry out the law. of Budgets.

The strategy could go through prioritize measures of political content without budgetary impact. The risk is great. The demands of groups such as ERC, Junts or Bildu could further wear down the PSOE, in the run-up to the European elections. Some elections in which the socialists have a lot at stake after the party’s stumble in the Galician elections. Added to this is the mortgage that Sánchez has carried since his inauguration. Specifically, the system of writing off the debt of the autonomous communities with the Autonomous Liquidity Fund (FLA) that the socialist announced after his pact with ERC. The Minister of Finance announced last December that she would begin meeting regional leaders in the first quarter of the year with the aim of outlining the mechanism; nevertheless, The plan remains stalled due to the extra effort it will require for the public coffers.. In the least harmful case, the State will have to assume more than 49,000 million of regional debt, according to S&P Global. At worst, the impact will exceed 71 billion.

The numbers don’t come out. Many analysis entities warn of the difficulty of meeting the deficit objective as early as 2024. AIReF questioned this last week. The organization chaired by Cristina Herrero warned of the negative effect of the permanence of the bulk of anti-crisis measures, and also insisted on the need for the autonomies and city councils not to deviate from their spending rule. Funcas’ forecasts do not smile on Moncloa either. In the best scenario – with a GDP confirmed at 2% in 2023 – the entity foresees a deficit of 3.3% in 2024. “The necessary structural adjustment should be close to 5,000 million euros,” says its economic director, Raymond Torres. BBVA Reserch expects that the imbalance in the accounts will close the year at 3.6%.

The fall in the CPI will reduce the momentum in collection

The spending contraction effort will not stop there. The fiscal path imposes a gradual reduction in the deviation of the accounts that should bring the deficit to 2.5% in 2026. The task will require an additional effort. Without the tailwind that inflation has injected into tax revenues in 2023, and with the economy’s vigor exhausted, Spain must commit to implementing structural consolidation measures of between 0.4% and 0.6% of GDP per year, according to BBVA Research. That is, Moncloa must integrate an annual cut of more than 8,000 million euros. “Inflation explains a good part of the reduction in the deficit in 2023 and 2022,” says Raymond Torres. The economic director of Funcas points out that the CPI will not take long to fall to 2% in the medium term. This, together with the lower GDP growth, “will force us to make an extra effort to reduce the structural deficit,” he assures. “The distance between current levels and the objectives is so great that efforts will have to last at least five years,” explains the latest economic situation report published yesterday by BBVA Research, which estimates that the deficit will not fall from 3% until 2025, the year in which it will close at 2.9%.

The fear is shared by AIReF. The organization also points to the loss of vigor of the GDP as one of the obstacles to achieving what was committed to the European Commission. “Mere growth does not seem sufficient to continue reducing deficit and debt in a sustained manner,” explains the latest document released. It warns that the objective will only be achieved under certain adjustment conditions.

The European Commission already recommended that Spain almost a year ago redefine anti-crisis measures, directing them to the most vulnerable groups and eliminating those dedicated to the middle class. Von der Leyen’s people advise the Government prepare policies that cut €9.3 billion each year to guarantee compliance with the calendar of fiscal commitments that must be renegotiated next September.