Wednesday, August 17

Brussels asks Spain to “preserve prudence” in the face of “support measures” to “guarantee sustainable public finances”

The European Commission asks Spain to “preserve a prudent fiscal policy” to “guarantee sustainable public finances”. That is, to preserve the vigilance of the joys in public spending at a time when the return to debt and deficit standards is looming as of 2023. Although these standards will be reformed to make “sustainability and growth” compatible, although the letter of that is still missing, both the thick and the small.

The Community Executive has presented this Wednesday its autumn package of the European Semester, a set of reports on the economy of the European Union. The one on the 2022 alert mechanism, a tool to detect possible macroeconomic imbalances, explains that this year it concludes that in-depth reviews (IDR) “are justified for 12 Member States: Croatia, Cyprus, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Romania, Spain and Sweden “. And he adds: “The new in-depth examinations will assess how the imbalances have evolved, analyzing their severity, evolution and the response of governments to update existing assessments and analyze possible remaining needs.”

In June 2021, the European Commission concluded that Spain was experiencing macroeconomic imbalances, related to high levels of external, private and public debt, which have cross-border relevance, in a context of high unemployment. In the updated scoreboard that includes figures up to 2020, several indicators are above their indicative thresholds. Namely, the net international investment position (PIIN); the growth of unit labor costs (ULC), the market share of exports, public debt and private sector debt, the unemployment rate and the activity rate.

After a 10.8% decline in 2020, real GDP is projected to increase by 4.6% in 2021 and 5.5% in 2022. The nominal GDP level in 2023 is also projected to be 2, 6% higher than its 2019 level.

“With the COVID-19 crisis, the private debt / GDP ratio increased above 146% of GDP in 2020,” says Brussels, “which reflects both the flows of credit to the business sector and, to a greater extent, the considerable drop in GDP%. The increase in the private debt / GDP ratio is likely to be partially reversed in 2021, due to the expected economic recovery. ”

On the other hand, “the already high public debt / GDP ratio increased 25 points in 2020, reaching 120% of GDP, reflecting the depth of the recession and the impact of government support measures undertaken in response to the crisis. of COVID-19. It is projected to decline moderately by 2022, reaching 116%. ”

“The banking sector improved its resilience over the last decade, and with the COVID-19 crisis, the capitalization of the banking sector has marginally improved, although it is still low,” says the European Commission: “The liquidity situation of banks continues being reassuring. Profitability has been persistently low and turned negative in 2020. The non-performing loan ratio decreased to 2.8% in 2020. However, it may increase in the future, due to the gradual elimination of public support measures, like the moratorium on loans and guarantee schemes. ”

The analysis also reports that “after falling for several years, the unemployment rate rose again in 2020 to 15.5%, in the context of the COVID-19 crisis. The unemployment rate is expected to decrease in 2021 and 2022. The activity rate decreased and remains below the desired threshold. In addition, the segmentation of the labor market continues to be a cause for concern. ”

According to Brussels, for the cases of “Belgium, France, Greece, Italy and Spain, given the level of their public debt and the high medium-term sustainability challenges before the outbreak of the COVID-19 pandemic, when taking budgetary measures supportive, it is important to maintain prudent fiscal policy in order to ensure sustainable public finances in the medium term. Comprehensive assessments should be prepared for 12 Member States to identify and assess the severity of potential macroeconomic imbalances: Croatia, Cyprus, France, Germany , Greece, Ireland, Italy, the Netherlands, Portugal, Romania, Spain and Sweden. The same ones that had already been identified with imbalances or excessive imbalances in the previous cycle “.

In the case of Spain, “the economic recovery is gaining ground, the support measures at national and European level have underpinned the recovery of the labor market and have cushioned the effects of the crisis in the business sector. In addition, the continued economic growth and wide implementation of recovery funds will help reduce deficits and debt. However, certain challenges lie ahead for the economy. ”

Analysis of the Spanish budget

In relation to the evaluation of the Spanish budget plan, the European Commission states that “in 2022, based on the Commission’s forecast and including the information incorporated in the Draft Budget Plan of Spain, it is expected that the fiscal orientation, including the momentum provided by recovery funds, be contractive “by current spending in 2020 and 2021.

“Spain plans to provide continuous support to the recovery by making use of the recovery and resilience fund to finance additional investments,” says Brussels, “Spain also plans to preserve nationally financed investment.” And he adds: “Given the level of public debt in Spain and the high medium-term sustainability challenges before the outbreak of the COVID-19 pandemic, when taking supportive budgetary measures, it is important to preserve a prudent fiscal policy to ensure sustainable public finances in the medium term. The Commission recalls the importance of the composition of public finances and the quality of budgetary measures, including through investments that promote growth, in particular by supporting the green and digital transition. ”

The Community Executive also states: “Taking into account the strength of the recovery, Spain is invited to periodically review the use, effectiveness and adequacy of the support measures and be prepared to adapt them as necessary to changes in the economy. circumstances”.