The EU's Ministers of Economy and Finance (Ecofin) asked Spain for a structural adjustment equivalent to 0.65% of the Gross Domestic Product. But the Government of Pedro Sánchez has a margin of 0.5 points that can be distributed this year. Community sources acknowledge that an adjustment of 0.3% would be enough to pass the exam with a good note. It could even present a draft with 0.15%, although then they warn that this would mean leaving some cuts for 2020 and the one approved for Spain would come with a serious attention call. And if the incoming accounts were expansive, Brussels would consider that Spain violates its commitments and could react with great harshness.
Italy has already announced its intention to go beyond this red line and plans to present a project that, far from reducing the structural deficit, extends it by almost eight tenths. If Rome does not rectify, the European Commission is preparing to release its power to reject a draft Budget, a humiliation that could trigger a serious institutional crisis with that country.
The European Commissioner of Economy, Pierre Moscovici, insists on differentiating Spain from the Italian case because the Government of Pedro Sánchez has expressed its willingness to respect community norms. But the Moscovici team prefers to reserve its final assessment until the Economy Minister, Nadia Calviño, sends on Monday the new macroeconomic table with the main data of the Budget, between which there is the forecast of growth or the objective of deficit. Over the last two weeks, in fact, Calviño has insisted on both Ecofin and several forums on Spain's commitment to reducing the deficit and public debt.
Community sources consider valid and, in some cases, necessary social measures advanced before yesterday in the agreement between the Government and Podemos. But they have doubts about the ability to finance these pledges and about the actual performance of the announced tax measures, such as the minimum tax on corporate profits or the tax on financial transactions.
More concern generates the drastic increase in the minimum wage by 22% (up to 900 euros per month) and its possible impact on the creation and maintenance of employment in a country with a very high unemployment rate.
Even so, all sources consulted coincide in highlighting that Spain can easily surpass the budget examination provided that the figures confirm that the nominal deficit this year will be below 3%. The possible rebellion of Italy, however, could complicate the situation. If the Government of the 5 Star Movement and the League causes a train collision with Brussels, the sparks of the institutional fire can spread rapidly.
On the one hand, Brussels would apply budget surveillance with an unknown rigor since three years ago Moscovici managed to impose a relative relaxation of the deficit targets. On the other hand, the clash between Italy and the Commission could generate turbulence in the market that would make it more expensive to finance the debt of the countries in the periphery of the euro zone, which would force Spain to tighten the adjustment. This risk of turbulence would be heightened by the close end of the debt purchase programs of the European Central Bank (ECB), which at the end of the year plans to leave the euro zone countries without this safety net, although for the time being it will keep The types.