Monday, July 4

An investment shock in three years: the government’s strategy to transform the country with European funds

Not everyone is doing it like Spain. But neither are the rest of the EU countries like Spain. Our country, which is the fourth largest economy in the EU, closed 2020 with a 10.8% drop in GDP due to the coronavirus crisis, it has been accumulating investment deficits due to cuts from the financial crisis and, unlike countries of Similar importance in the EU, it does have 38 billion structural funds in the EU financial framework for 2021-2027.

Thus, Spain has requested, for the moment, only the part of transfers, of subsidies, not of credits, while financing conditions in the markets continue to be favorable. It is an option that leaves open: until August 2023 there is room to request the part of the credits.

And 80% of those 69,500 million in transfers that have been approved for Spain, will arrive between now and 2023. A “huge” amount of money, as recognized by the Government, which represents a multiple challenge in management and absorption. But the Executive understands that “Spain cannot spend seven years going around. Either an important change is being made now, or we will not be able to take a truly structural leap.”

Concentrate the investment shock

In the Executive they emphasize that Spain has the particularity, that they do not have countries like Italy or France, of also having those 38,000 million structural funds between now and 2027, so they understand that it is not worth doing like Italy and deploying the plan quietly until 2026, because it would overlap with the 38,000 million of those structural funds.

The Government defends that “it makes perfect sense to concentrate the investment shock in these first three years”, which amounts to 54,000 million, to which the structural ones will later be added and to maintain the investment effort until 2027. “There are other countries that do not have this circumstance, “reason government sources, who add:” There is no large country that has had such an investment deficit. Or we managed to take a leap and have it again and reach a level of R&D that corresponds to the size of our country … Or we managed to make a leap in FP and digitization … Or what is the path we are on? That is why it is the concentration in the first years. It is not something capricious “.

Indeed, the Spanish plan is different. Italy goes quietly at the age of six; Portugal has much less quantity. The Spanish plan has a lot of money and is very concentrated to try to have a structural impact that is later maintained with the structural funds and the budget.

And here comes another challenge: absorption, the ability to spend all that money on time on the reforms and investments designed, on the milestones and commitments for which the money will arrive. “Yes,” they acknowledge in the Executive: “But the alternative is to spend the six years little by little and find ourselves in 2025 with the same challenge and also the structural funds. This has to be a countercyclical plan, the money has to be injected now , which is when we have fallen 10% and we can give it a kick to the economy. This amount of money is so huge that either it brings a change in the country or it doesn’t make sense as a recovery plan. ”

“This recovery plan”, said the economic vice president, Nadia Calviño, before the Eurogroup on Thursday, “has a dimension that goes beyond the national, we all hope that Spain will be one of the engines of economic growth in Europe in the next years”. And he added: “Probably the recovery plan for Spain is the most ambitious in terms of the volume of investments that we want to carry out in the first years.”

Labor and pension reforms

The Spanish plan has gotten quite unprecedented in Brussels. And it is that the Commission has understood that the labor reform and the pension reform depend on negotiation in Spain, fundamentally on social dialogue, in the understanding that only a reform can be lasting if it has had great political and social support.

Actually, Brussels, which at one point came to propose the Austrian backpack for Spain, has decided to stop doing in exchange for the commitment to negotiate with the social agents, no, as has been done in the last year and a half with matters such as the extension of the ERTE, for example.

In any case, Brussels includes a footnote in its evaluations on the labor reform: “The most recent report on Spain recalled the need to preserve the elements of the labor market reforms introduced in 2012-2013 that have played an important role. important and recognized role in driving the job-creating economic recovery that began in 2014 “.

In this sense, the Government recalls that its plan is to “correct those most damaging aspects.” And he adds: “The Commission has not told us that nothing can be touched. And it has not told us that there are red lines at all. They have understood that we are going to try to improve things and that all this is going to be done with social dialogue. They say you have to preserve what works well, that’s what we are going to do. ”

The four fundamental elements of the labor market reform proposed by the Government are: subcontracting, collective bargaining, establishing a permanent mechanism inspired by alternative flexibility ERTEs, and simplifying contracts. And the deadline that the Government has given itself has been to have the reform by the end of 2021. That means that a good part of the 12,000 million that are expected by mid-2022 will depend on the reform being carried out.

In this sense, the Executive understands that a transformation of the country must start with reforms such as labor or administration.

“The labor reform is undoubtedly one of the most urgent reforms from the structural point of view in our country”, Calviño recognized this week in Luxembourg before the Eurogroup: “Above all because we need to have this new labor framework that gives legal certainty to the companies and also give confidence to workers, improve the quality of employment that is created in this expansive phase that is now beginning in our country. And that is why we have established that our objective is to reach this new framework of labor standards at the end 2021. And indeed, that milestone corresponds to the payment that will occur in the first half of next year. ”

This urgency for labor reform, which is also marked on the European Commission’s calendar, puts pressure on everyone: the Government, because it has committed to reaching an agreement in social dialogue. And to the social agents, because they know that social dialogue is mandatory but not essential for the Government to make its proposal to the Congress of Deputies. “The Government will make the appropriate decisions if necessary,” the sources explain, “but there will be an agreement, it does not enter anyone’s head that there is no agreement as there have been so many on labor matters in recent months.”

In relation to the pension reform, the Government has transferred to Brussels that, although it does not like indexation to the CPI, the truth is that the rest of the countries do have indexed pensions and that, on the other hand, the current system of the factor sustainability was never applied. The very party that approved that reform, the PP of Mariano Rajoy, did not apply it.

Frontal opposition of PP and Ciudadanos

Both PP and Ciudadanos have been prophesying that the funds were in danger for different reasons. Whether it was due to the state of alarm, the management of the pandemic, the alleged lack of control mechanisms, the governance system, the reform no cream of the election system of the Judicial Power or even the one baptized as Ministry of Truth – defended by the European Commission -, PP and Ciudadanos have been calling for the suspension of the Spanish plan in Brussels and Madrid on several occasions since even before the European mechanism was approved last July.

The last time, a week ago, in the plenary session of the European Parliament, the president of the European Commission, Ursula von der Leyen, who this Wednesday congratulated Spain, was summoned by the spokesman for Citizens, Luis Garicano: “We ask for transparency , reforms and investing in people. I hope that the Commission will do its job and make sure that this opportunity is not a missed opportunity. ”

This Wednesday in Madrid, Ursula von der Leyen, asked for unity to carry out the Spanish recovery plan: the only way for the reforms to be lasting is for them to have broad consensus, something that the pension and labor market reforms did not have. of the PP.

However, the government is skeptical of the collaboration of the opposition, which has been blocking the renewal of constitutional bodies, such as the General Council of the Judiciary, for years.

European bet

The approval of the European Commission this Wednesday to the Spanish plan, with ten outstanding and one notable, is an essential step. But there is still another: that of the EU partners in the Council, and on July 13 there is an Ecofin in which the money can be released for Spain. Could some partners, the self-styled frugal, criticize for distrust or laxity of the European Commission? Neither the European Commission nor the Government believe it.

Ursula herself said Wednesday that the money would arrive in July. And in the Spanish Executive they point to the fact that Von der Leyen is on a tour of Europe with the approved ones, evidences the message that the EU wants to transmit: that it is Europe’s recovery plan, that it is Europe starting up. And they point out that according to what criticisms they can lead to generate “mistrust” about Europe at a time “very important for the EU.”

“I have no indication that there will be any problem for the approval of the plan in the next Ecofin of July”, affirmed the economic vice president, Nadia Calviño, this Thursday in Luxembourg, shortly before the meeting of the ministers of Economy and Finance of the eurozone (Eurogroup).

The Executive highlights the qualitative change that an anti-cyclical instrument such as the 750,000 million of the recovery fund can suppose, which means that the European Commission has borrowed this week to transfer billions to the countries to make investments of the national plans.

And the credits?

Spain has allocated 140,000 million euros. But, for now, he has requested only the transfers, 69,500 million. The 70,500 million in credits can be requested before August 2023. Why? “Because Spain continues to finance itself at a good price in the markets,” explains the Government, which plans to request that part of the credit, later, from 2022 as a cushion for items that do not have predetermined amounts, such as the permanent mechanism of flexibility and job security, for example, or troubled business support lines.

In addition, the Government is aware that access to credit is not so much the money you ask for as the political message of using European financing. For this same reason, there are 240,000 million euros in soft loans from the Health MEDE unused by anyone, because of the stigma of accessing money from the EU bailout fund.