The European Commission approves the fiscal path presented by Spain. Despite not having a budget project and being one of the three EU countries – along with Belgium and Austria that do not have a government after the holding of elections – that has not presented the draft budget plan, Brussels sees it as “credible” the path of primary net spending – the increase in public spending without taking into account some cyclical costs and debt interest – that the Government presented and that exceeded the indications previously given by community technicians.
Specifically, Spain proposed that this figure be 3.7% of GDP in 2025 while Brussels left it five tenths below (3.2%). For the following years, the path projected by the Government is 3.5% in 2026; 3.2%, in 2027; 3%, in 2028; also 3%, in 2028; 2.5%, in 2029; and decrease to 2.4% in 2030. The Brussels approach was more restrictive for the first years while giving a slightly greater margin in the following: 2.8% in 2026, 2.7% in 2027, 2.7% in 2028, 2.7% in 2029, 2.6% in 2030 and 2.5% in 2031.
On average, the European Commission’s recommendation was 2.8% while the Government increases it slightly to 3%. The community technicians assume in the evaluation that the “set of hypotheses” used by the Executive differ from those of the European Commission in matters such as the initial fiscal position of 2024, the potential growth of the coming years, the nominal interest rate and the expected income. “They do not have a significant impact on the average growth of net expenses compared to the Commission’s assumptions,” the document concludes.
More GDP and tax reform
Executive Vice President Valdis Dombrovskis has downplayed the discrepancy and attributed it to expected GDP growth and the measures the Government has implemented, including the tax reform that Congress approved this week. “Spain has committed to having additional income through this tax reform,” said the Latvian.
The approval of the fiscal path is one of the milestones in the new framework of the EU fiscal corset that has been resumed this year after four years of suspension of the Stability and Growth Pact due to the pandemic and later due to the consequences of the war in Ukraine. The new fiscal rules are fundamentally based on the spending path to lead countries to meet the deficit and debt objectives of 3% and 60% of GDP, respectively.
Spain is one of the five countries, along with Finland, France, Italy and Romania, have presented fiscal paths for periods of seven years and not four, as initially planned. “This has significantly reduced its average annual fiscal effort, by around half a percentage point of GDP,” explained the Commissioner for Economy, Paolo Gentiloni, in the presentation of the autumn package, which was his last presentation given that it will not continue in the new College of Commissioners that this Wednesday will receive the green light from the European Parliament.
Having not presented the budget plan, the European Commission had doubts until the last moment about whether to present an analysis corresponding to Spain at the same time as the rest of the EU countries, but finally it has opted to carry out an evaluation that is limited to the waiting for the draft budget plan that Brussels hopes to receive “in the not distant future,” according to community sources.
The frugal paradox
As for the fiscal paths of the twenty European countries that have sent them to Brussels, all of them approve except for the Netherlands. What the community technicians have detected is that the fiscal path proposed as a result of the extreme right Government agreement is that the deficit would exceed 3% in the year 2029. And one of the main objectives of the Stability and Growth Plan is precisely that the public accounts are healthy and below that threshold in the case of the deficit and 60% in the case of the debt. The Netherlands is the only country whose draft budget is “not in line” with the recommendations of the European Commission.
Greece, Cyprus, Latvia, Slovenia, Slovakia, Italy, Croatia and France are those that pass the filter without problems “since their net spending is expected to be within the maximum limits” while Estonia, Germany, Finland and Ireland do not. They fully comply with the recommendations because they exceed the established ceilings. Luxembourg, Malta and Portugal do not do so because “they do not progressively eliminate the energy emergency aid measures” that were put in place during the crisis and that the European Commission has invited member states to withdraw.
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