The European Commission has already begun to ask countries to move towards righteousness. After three years in which flexibility has been the general tone due to the pandemic and after the shock of the war in Ukraine, Brussels yesterday called for an end to free and uncontrolled spending by all governments . For this reason, in his recommendations he asked Spain to limit the increase in public expenditure to a maximum of 2.6%, and to start withdrawing aid to alleviate the energy crisis that have made the electricity and gas bill more expensive.
Countries must monitor their accounts more closely, and must limit the deficit to 3% and the public debt to 60%, as provided for in the treaties. Taking these two variables into account, net primary expenditure (which excludes, among other things, interest or unemployment benefits) should not exceed 2.6%. The Commission’s recommendation for next year is that “taking into account fiscal sustainability considerations and the need to reduce the deficit below the reference value of 3% of GDP, an improvement in the deficit would be appropriate structural of at least 0.7% of GDP by 2024”, the report points out. In any case, Brussels considers that Spain will comply with this recommendation, since according to its forecasts, the increase in the spending ceiling will be 1.4%, well below the limit set by the Commission, if the current situation does not change.
As for the deficit, according to the Stability Program sent by the Government to Brussels, it will reach 3% in 2024. Although the Community Executive in its forecasts considers that it will be 3.3% next year, they are “online”. In fact, the Commission considers this plan to be “realistic”. Brussels will start opening procedures for excessive deficit from next year and hopes that in the budgets of the countries this issue “will be taken into account”. On the other hand, both the Government and the Commission agree that the debt will drop by 109.1% in 2024.
The Community Executive has also advised caution beyond 2024, and to continue this strategy in the medium term, while maintaining investments and reforms, especially through recovery funds. “Funds are the most important tool to guarantee sustainable growth”, assured the commissioner of Economic Affairs, Paolo Gentiloni. “We ask for prudence but, at the same time, to continue with growth, we cannot afford one thing without the other, it is a difficult marriage, but it must be achieved”, he added. The Executive considers, in this sense, that the rollout of the recovery plan in Spain – in the lead compared to the rest – has been “favorable” and has led to “improvements” in the economy.
On the other hand, the report also asks Spain to eliminate the aid granted due to the energy crisis by the end of 2023 and recommends that the savings be used to reduce the public deficit. In the event of a new steep rise in prices, the report suggests that measures be targeted and targeted at vulnerable households and businesses.
In its report, Brussels once again warns that the macroeconomic imbalances that worry the most are unemployment and debt, although despite the warning, the indicators have improved and, if they continue with the current trend, Spain could leave the next year the list of countries with the most imbalances, which has not happened for 12 years.
Although the public debt is “high” – at 113.1% in 2022 -, GDP growth has helped make the trajectory downward (with “moderate” reductions this year and next). Despite this, it is still above pre-pandemic levels. As a result of this situation, the Executive shows its concern for the sustainability of public debt in the medium and long term in the current financial context, given the turbulence of recent months. With regard to unemployment, he also warns that it remains at high levels, and “very high” in the cases of long-term and youth unemployment.
It also warns of other risks for the Spanish economy, such as the impact on the rise in interest rates, which has made mortgages more expensive.
