Spain is freed from an EU excessive deficit procedure. The European Commission has left Spain out of the countries to which it will open a file when resuming the new fiscal rules after years of unlimited expansive spending to overcome the crisis of the pandemic and the war in Ukraine. Other countries, such as Italy or France, will have to be subject to tighter control by Brussels for exceeding 3% of the deficit last year, but the prospects that the Spanish economy will reach that figure this year and reduce it In 2025 they save it from the magnifying glass of Brussels.

Spain exceeded that threshold in 2023 by reaching 3.6% of the deficit, but both the Government’s forecasts and those of the international economic institutions, including the European Commission itself, indicate that it will meet the 3% in 2024 and that It will reduce it even further in 2025 to 2.8%. The trajectory is downward (seven percentage points) from the peak of 10.1% at the worst of the pandemic and confinements. The debt, however, remains well above the 60% limit established by the European treaties for healthy economies. However, the trend is also downward, having fallen 20 points compared to the covid crisis and the forecast is that it will stand at 105.5% at the end of the year.

In the same situation as Spain are four other of the twelve countries that last year were above 3% of the deficit (Czech Republic, Estonia, Slovenia and Finland) while the European Commission will open files to France, Italy, Belgium, Hungary , Malta, Poland and Slovakia because they do not meet the minimum requirements.

The opening of an excessive deficit procedure is the first step in a sanctioning file. If the European Commission considers that governments do not take the necessary measures to correct the deviation, it can impose semiannual fines corresponding to 0.05% of GDP (around 730 million in the case of Spain). The new fiscal rules give member states greater flexibility to clean up their accounts and establish a more affordable sanctioning regime than previous ones. In the past, the punishment – ​​which amounted to up to 0.2% of GDP – was never applied, despite the fact that Spain and Portugal were close to it.

Spain removes stigmas

The economic vice president of the community government, Valdis Dombrovkis, already announced that some countries would be left out of the files on this occasion when the deviations from the deficit were specific, temporary or attributable to exceptional causes. “There may be borderline cases,” he noted in an interview in the Financial Times: “If there is a country whose excessive deficit is close to 3%, but it is temporary, we could decide not to use the excessive deficit procedure.”

This is the case, therefore, of Spain. And to convince them of that, the Minister of Economy, Carlos Body, has made efforts in recent months. In practice, however, the opening of this file would have more consequences in terms of stigma than practical ones given that the adjustment that Spain intends to make to end this year and next year below 3% of the deficit is greater than 0, 5% to which the new fiscal rules force countries that exceed that figure. Pedro Sánchez has described the decision as “extraordinary news.” The next step is that Spain will have to present budget data in mid-October and the fiscal path for the next four years.

The other good news for the Government is that the European Commission has removed Spain from the list of countries with macroeconomic imbalances on which it has appeared since it was created in 2011. In 2014, Brussels even warned that these imbalances were “excessive.” ”.

“France, Spain and Portugal no longer experience imbalances, since vulnerabilities have generally decreased,” states the communication from the European Commission, which, however, does detect in the case of Germany, Cyprus, Hungary, the Netherlands and Sweden, which are “excessive” in the case of Romania. In Greece and Italy there are still imbalances but they are no longer excessive.

“Greater effort to reduce high debt”

The main problems that the community government has always detected in the case of Spain have to do with the high debt rates – especially what has to do with private and foreign debt, which has been overcome by dropping more than one hundred percentage points in private debt and an improvement with respect to the external position – and unemployment. Although Spain continues to be the EU country with the highest unemployment rate, it has been reduced and affiliation to Social Security has set historical records with 21.3 million people in May.

To these elements, the European Commission adds the application of the recovery plan and the resistance of the financial sector, but demands “a greater effort, especially to reduce the high public debt.”

“It is a very relevant decision that recognizes and endorses Spain’s recognition of responsible fiscal management,” state government sources regarding the removal from the list of countries with imbalances. “This responsible fiscal policy has been made compatible with robust growth in the economies of our environment and has been compatible with the investment and measures that have been taken in such a complex environment,” they add.


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