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In new blow to blocked budget, Brussels slams Spain’s plan

The EU thinks the Spanish economy will deviate significantly from medium-term goals, and warns about the need for new structural reforms

Economy Minister Nadia Calviño with European commissioner Pierre Moscovici.
Economy Minister Nadia Calviño with European commissioner Pierre Moscovici. EFE

The 2019 budget blueprint that Spain has sent Brussels has failed to convince the EU executive.

The plan runs the risk of missing EU budgetary targets and could force Madrid to make big structural adjustments in 2020, said the European Commission in a draft document to which EL PAÍS has had access.

Spain is in a relatively special situation compared to other countries, because we have been unable to send Brussels anything other than a plan

Economy Minister Nadia Calviño

The EU executive is warning about the risk of a significant deviation from the medium-term objectives (MTOs) established by the Stability and Growth Pact, a set of rules to coordinate sound fiscal policies across member states. The document also expects Spain to fail to meet its public debt-reduction goals.

This verdict is an added blow to the Socialist Party (PSOE) government of Prime Minister Pedro Sánchez, who has been struggling to secure parliamentary support for his budget plan back home. Sánchez has been at the helm of a minority government since early June, and on Tuesday he conceded that if his budget plan is not approved, he may call early elections in Spain.

Warning signs

The European Commission had been issuing warnings about Spain’s budget plan for a month. First it requested additional information. Then it noted that the planned adjustments would have almost no effect, meaning that Spain’s deficit level is likely to reach 2.1% of GDP in 2019 rather than the 1.8% forecast by the Spanish executive.

PM Pedro Sánchez at the Spain Summit on Tuesday.
PM Pedro Sánchez at the Spain Summit on Tuesday. EFE

Brussels has stopped short of sending the budget plan back for rework, as it did with Italy in late October. But that does not mean that it is happy about it. The EU executive is particularly concerned about the planned increase in spending, and about the efforts to make structural adjustments, which it views as insufficient. The Commission also does not believe that Spain is going to meet its goal of reducing its high public debt, which is currently around 97% of GDP.

Spain’s economy minister, Nadia Calviño, had told Brussels in July that the Spanish economy would end the year 2018 with a deficit of 2.7% of GDP, half a percentage point higher than the goal set by the previous Rajoy administration. But Brussels never agreed formally to this change, and noted that this is above the 2.2% required by the finance ministers of the euro zone.

Relative uncertainty

Economy Minister Calviño had also asked Brussels to consider the “relative uncertainty” of Spain’s 2019 budget when appraising the plan she sent in.

“Spain is in a relatively special situation compared to other countries, because we have been unable to send Brussels anything other than a plan,” she reiterated on Tuesday at the Spain Summit, a Madrid event organized by the newspaper The Economist.

Once Spain brings its deficit down from 3% of GDP, which it is expected to do this year, the Commission will focus on getting the government to make structural reforms worth around €8 billion, equivalent to 0.65% of GDP. There is a two-year grace period when the goal may be partially unmet, but this means that most of the efforts would be left for 2020.

English version by Susana Urra.

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