Austerity was for others. Although Germany has always given lessons to other countries in budgetary orthodoxy, in 2025 it will close the year with a deficit above Spain. The calls for attention of the then German Chancellor, Angela Merkel, still resonate when during the great crisis she warned Spain that “it should do more” to reduce its red numbers or when she threatened that “those who do not do their homework will not receive our support.”
The European Commission published its autumn economic forecasts this Monday in which it indicates that Spain will end 2025 with a deficit of 2.5%, below Germany, which will end the year with red numbers of 3.1%. Furthermore, our country also comes out better than France, with 5.5%, or Italy, which will close this year with a 3% deficit. Nobody remembers anymore that Spain was placed among the PIIGS group (Portugal, Italy, Ireland, Greece and Spain) due to the debt and deficit problems it suffered during the financial crisis.
But, furthermore, this situation is going to repeat itself in the next two years. While Spain is going to reduce the deficit to 2.1% of GDP in 2026 and 2027, Germany is going to increase it to 4% and 3.8% in those two years while in France it increases to 4.9% and 5.3%, respectively. Among other things, because Spain is going to remain at the forefront of GDP growth among the four main economies of the euro zone in the period 2025-2027.
When looking for the reasons for this drop in debt in Spain, the Minister of Economy, Carlos Body, stressed this Monday in the joint commission for the European Union in Congress, that the good progress of the Spanish economy driven by European funds “is being done in a balanced way because the Plan [de recuperación] It is allowing us to square the circle, that is, to be able to grow, to do so in a strong, robust, sustained manner and also to do so with an element of fiscal responsibility. That is, with a reduction in our deficit-to-GDP ratio, a reduction in our debt-to-GDP ratio, also differentially greater than that of our main partners.”
In fact, Brussels explained about Spain that “after strong growth in the first half of 2025, economic expansion continued in the third quarter” due to “the strong contribution of private consumption and investment.” The Commission added that “economic activity is expected to remain robust” until 2027, where “domestic demand will be the main driver of growth, driven mainly by private consumption and good investment performance” and that “consumer spending will benefit from greater gains in purchasing power and additional employment growth in a context of sustained internal migration.”
The main risks for Spain come from abroad, that is, from the poor economic development of trading partners such as Germany or France, which tend to be our main export markets: they are related to “the weaker than expected economic activity on the part of Spain’s main trading partners” and to “a more pronounced slowdown in migratory flows”, which could reduce the dynamism of the labor market.
With these in mind, the Government announced this Monday that it will maintain flexibility for the Autonomous Communities and will allow them to incur a deficit of 0.1% of GDP in the next three years, in accordance with the path of stability that Vice President María Jesús Montero will propose during the meeting of the Fiscal and Financial Policy Council (CPFF) this Tuesday.
Body added that “the objective for the year 2025 is to reach that 2.5% deficit over GDP, which represents a surplus in primary terms, that is, once we remove the expenses associated with the interest on the debt. This is very important because it generates a positive snowball effect in terms of the sustainability of the debt, not only due to greater growth, but also due to this element of fiscal responsibility.”
Although the crisis situation in which the European Union was immersed in 2011 is not comparable to the current one, Spain then changed article 135 of the Constitution to include that the State and the Autonomous Communities could not incur a structural deficit above the limits of the European Union, whose bar is 3%. However, Germany has responded to its economic crisis with a constitutional change, but in the opposite direction with the excuse of defense and infrastructure spending: the “debt brake” is ended, a provision of the Constitution that imposed a maximum debt of 0.35% of GDP on the federal government and prohibited deficits on the federated states.
The European Commission has noted in its forecasts that “Germany has gone through a prolonged period of economic stagnation,” since since the Covid-19 pandemic, “it has recorded one of the weakest recoveries among advanced economies” with “a continued loss of export market shares, notably vis-à-vis China.” Although “tariffs and high global uncertainty are expected to continue weighing on investment and exports” in Germany, Brussels is confident that “these effects will be offset by increased public spending, which will support consumption and investment in general, especially in 2026 and 2027.” That is, fight the crisis with more spending instead of more austerity.
In the case of France, where low economic growth is compounded by the institutional and political crisis it is experiencing, the Commission points out that “domestic economic and political uncertainty will affect real GDP growth, which is expected to reach 0.9%” in 2026. While in 2027 “economic activity is projected to gain momentum,” with real GDP growth at 1.1%, “supported by a decrease in uncertainty and a slightly expansionary fiscal stance.” That is, public spending will also increase to achieve a greater increase in GDP.
Debt reduction versus increase in Germany and France
Regarding debt, while Germany and France increase it between 2025 and 2027, Spain reduces it. The European Commission highlights that in Spain “the debt is expected to continue to decrease, helped by sustained economic growth”, so that it remains “at 100% in 2025, thanks to the growth of nominal GDP that exceeds the cost of debt service”, while “driven by the reduction of the deficit, the ratio is expected to continue decreasing in 2026 and drop below 100% for the first time since 2019”, to 98.2% in 2026 and 97.1% in 2027.
Meanwhile, in Germany the trauma of exceeding 60% of GDP debt, a limit imposed by the EU, has already passed, Brussels points out that “it is expected to increase to 63.5% in 2025, 65.2% in 2026 and 67.0% of GDP in 2027.” The case of France is more worrying. The European Commission warns that “after increasing to 113.2% of GDP in 2024, the public debt ratio is projected to continue increasing throughout the forecast horizon, reaching 120% of GDP by 2027.” According to Brussels, “this increase is mainly due to high primary deficits and increased interest payments, which will more than offset the debt-reducing effect of nominal growth.”
The reduction of the deficit and the debt will also overthrow one of the main arguments of the Popular Party to attack the Government of Pedro Sánchez. The deputy secretary of Finance, Housing and Infrastructure of the PP, Juan Bravo, went so far as to say this Monday that “we are also much worse than seven years ago, when the Popular Party stopped governing.” Based on the data, in 2018 the GDP grew by 2.4%, five tenths less than the forecast for this year; It closed with a deficit of 2.5%, which is the same as what is expected to end in 2025; The public debt was 99.8% of GDP, compared to 100% of GDP that is expected to end this year, while the unemployment rate in 2018 was 14.4% and that of 2025 will end at 10.4%.
Source: www.eldiario.es
