The Eurogroup demands a “slight adjustment” of the budget to launch the new fiscal rules

Spain has not yet even approved a draft budget for this year, and in Brussels people are already starting to talk about what the 2025 accounts should be like. The Eurogroup has launched its basic lines for the next year and proposes that they be “slightly contractionary.” ” following the guidelines of the new fiscal rules. That is, they demand spending cuts or tax increases to begin reducing the deficit and debt and, at the same time, combat inflation. The finance ministers of the euro zone defend that this is the appropriate budgetary commitment despite the stagnation in the monetary area due to the need to reduce the debt accumulated in previous years, with two major crises, the pandemic and the energy crisis. price increases due to the war in Ukraine, which have required significant public outlays to prevent the blow in Europe from being greater in homes and companies.

From the community institutions they demanded that the member states that for this year's accounts these extraordinary aid measures be withdrawn and that the savings be used to reduce the public deficit. This 2024, on a budgetary level, is being a year of transition: the new rules are not fully in force—they have not yet been approved by the European Parliament. In the Spanish case the situation is even more complex. Spain still does not have the 2024 accounts approved because it had to extend this year's accounts due to the electoral calendar. The Spanish authorities presented in Brussels a budget projection, indicative and not definitive until they manage to approve this year's budgets. However, in the initial budget plan the European Commission was warned that the Spanish fiscal situation was “very difficult” and when it presented the final accounts it would have to present a credible debt and deficit reduction strategy.

The Spanish minister, Carlos Body, has assumed this scenario upon his arrival at the Eurogroup by pointing out that this issue was going to be addressed and that it was going to involve the “demand for deficit and debt reduction.” He also plans this horizon in the German case, despite the fact that the situation of its public accounts is much better than that of Spain. In fact, last week the head of Finance, Christian Lindner, sent a letter to the rest of the ministers of the ruling coalition warning that it was time to be austere.

The entry into force of the fiscal rules this year – if the European Parliament finally gives its blessing – implies the assumption of a very demanding calendar. As the text approved this Monday in the Eurogroup says, the budgets of the 20 countries that make up the euro zone will have to be adapted to that recommendation of being “slightly contractionary.” But first, countries that exceed the public debt threshold equivalent to 60% or more will have to have ready – negotiated with the European Commission and approved by the Council – their four-year adjustment plans that can be extended up to seven if they commit to making reforms. and investments.

“We are committed to guaranteeing its coherent and rapid application throughout this year,” the ministers emphasize in the approved text. “We will continue to implement ambitious structural reforms and preserve and, where appropriate, increase the level of investment, also in areas of common priority, such as the green and digital transitions, as well as defense capabilities, financed through national and European sources. EU, including the Recovery and Resilience Fund.”

In the Spanish case, these community funds from the recovery plan are key to maintaining the level of investment, given the complex fiscal situation and the high structural deficit. And precisely now both issues are on the Executive's table: the presentation of the budgets for this year cannot be delayed more than a few weeks and in a few days some type of decision must be made regarding the fourth payment to Spain of the recovery plan for about 10,000 million.

Next week, on March 20, the three-month period for the European Commission to finalize its evaluation of the 60 milestones and reforms corresponding to this section of the Spanish plan expires. There is a notable absence in it, the unemployment benefit reform, which Congress overturned in January due to the lack of support from Podemos deputies. There are barely nine days left until the deadline is met and everything indicates that Spain or Brussels would have to ask for more time or for the Government to accept a temporary reduction in the payment (as has already happened in some cases, such as Lithuania), and approve the reform within six months.

“We are trying to speed up the deadlines to try to reach that evaluation on time. In any case, this is the time to move forward and have those conversations at a technical level to achieve a positive assessment,” said Body upon his arrival in Brussels, placing emphasis on the “advances” that have been made in recent weeks. However, he himself has admitted that at this moment “both options are possible.”

Sources from the Spanish Government admit that these two are the probable scenarios, because there is not only a problem with the subsidy reform, but there is also some matter of technical complexity on which Brussels is asking for changes, seeing the demands of the European Court of Auditors in the Recovery Fund audits done so far. This could imply, other Government sources point out, that an additional month of time would be necessary for the fourth payment to come to light.

“An extension has not been decided at the moment,” said the Commissioner for Economy, Paolo Gentiloni, who this week will travel to Madrid to be present, precisely at an event on the Recovery Fund in Madrid. “Cooperation with Spain is very good and we consider Spain among the countries that lead the implementation of the recovery fund, also with complicated reforms,” he concluded.

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