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Brussels gives the go-ahead to the Budgets of Spain although it sees its fiscal stability at risk

Okay, but with caveats. The European Commission has supported this Wednesday the Spanish budget draft for 2021, sent a month ago, but expresses its concern for “long-term fiscal sustainability”, the high level of public debt and the fact that “the challenges for the real economy and the financial sector have increased”. All community partners, without exception, pass the exam.

In a report on the so-called European Semester, community technicians emphasize that “the Spanish budget draft is broadly in line with the recommendations adopted by the Council on July 20, 2020. Most of the measures established in the Draft Budget Plan of Spain support economic activity in a context of considerable uncertainty. “But at the same time, and” given Spain’s level of public debt and the high medium-term sustainability challenges already present before the outbreak of the Covid-19 pandemic “, the Commission stresses that “it is important for Spain to ensure that, when adopt supportive budgetary measures, maintain fiscal sustainability in the medium term“.

Aids

It is curious, because I have done the data of the Commission highlight that Spain is the country that will dedicate the least effort in terms of GDP in 2021 to face the pandemic, just 1%. The main reason, after being one of those who did the most in 2020, is that the Budget does not include the extension of aid to ERTE. Its gradual withdrawal is similar to that of Belgium or Cyprus, the countries that occupy the last places in that ranking. Austria or Slovakia will touch 5% of GDP, and the average in the Eurozone will be 2.6%, between temporary and permanent stimuli.

For all this, I knowinvites Spain to review periodically the use, effectiveness and adequacy of support measures and to be prepared to adapt them as necessary to changing circumstances, “lines that are repeated for countries with the most disturbing levels of debt, such as Belgium, France, Greece, Italy and Portugal.

The Covid shock has exacerbated existing imbalances within the euro area. Although the level of debt does not appear to have been a factor that significantly aggravated the recessions after COVID, according to Brussels, “most of the countries that have been most affected by the pandemic and had to put containment measures strongest are characterized by relatively large levels of public or private debt“. In addition, some of the main ‘net debtors’, severely affected by the pandemic,” also have in common the dependence on tourism income (eg Cyprus, Greece, Portugal, Spain), and this exposure also has implications for their external balances. In short: the COVID crisis seems to be reinforcing existing patterns within the euro area in relation to economic divergences and internal and external indebtedness, “warn the technicians.

This analysis by the Commission is special in methodology, framework, and spirit. The so-called escape clauses of the Stability Pact were activated for months, so there is no 3% limit on the public deficit or 60% on the debt. There are no excessive deficit procedures (except for Romania, which already had it open before the pandemic). The rules are different and the objective, too. If the recommendation to the Member States is that they spend, invest and guarantee everything that is necessary, the slap on the wrist cannot be the same as always.

Therefore, the technicians have evaluated whether the measures recorded in the budget drafts “are temporary and, if not, there are measures planned to compensate.” The document recalls that “ensuring sustainability in the medium term is a necessary condition to be able to deviate from the normal budgetary requirements under the escape clauses of the Stability Pact “.

A relevant and recurring aspect that also appears in the papers this week is the question of income. It is not the first time nor will it be the last that Brussels has called into question Spain’s tax revenue estimates. It happened the last two years and again now, because the technical services do not believe that Spain can collect what it expects with measures such as the financial transaction rate (which could give 425 million and not the 850 expected by the Treasury, the anti-fraud measures (425 and no 828) or the tax on large technology companies, which according to Brussels could contribute around 800 million and not the nearly 1,000 calculated by Moncloa.

Likewise, the report on the so-called Alert Mechanism recommends that “in-depth reviews” be made for 12 countries, including Spain, but also France, Germany and Italy, the major economies of the Eurozone, or even the Netherlands, the same countries that had already been identified as having imbalances or excessive imbalances in February, before the outbreak of the pandemic. But the reports will not be published until spring, and in conjunction with the usual evaluations of the National Reform Plans and Stability Programs that all governments must submit in April. And hand in hand with the approval or not of the national resilience plans that will have to be drawn up in order to access European funds.

In today’s analysis, he also makes an additional reference to our country due to the fact that the so-called “post-program review” is still active. That is, the annual examinations carried out by the technicians of the institutions in the countries that were rescued and that are still repaying the aid. “In the case of Spain, the support measures of the Spanish and European authorities have mitigated the strong economic impact of the pandemic and credit risks. However, the challenges for the real economy and the financial sector have increased “, warns the paper. A touch, but without alarm, since for the moment access to financing is more than guaranteed.” The recent auctions have reflected the continued market confidence in Spain’s economy and sovereign debt despite the coronavirus outbreak. ”

Spain entered the mega-recession of COVID-19 “with vulnerabilities linked to external debt, the private and public sectors, and high unemployment. With the health crisis and confinements, the debt and unemployment ratios have gone down For this reason, and in general, the European Commission considers it appropriate, also taking into account the identification of the main imbalances indicated in February, to examine further the persistence of these imbalances or their correction “more Go ahead, ditch the document.

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