The deficit goes off again with the PSOE: it closed 2019 at 3% and leaves Spain on the verge of intervention



The Government of Pedro Sánchez, just being constituted, has a problem. It seems impossible, but some intend to turn it into an opportunity. The fiscal year 2019 ended with a public deficit close to 3% of GDP, a result that remains at side distances from the initial objectives and even of the most prudent forecasts and that is the first annual increase since 2012. The Government will have the opportunity to make up the final figure so that it is below 3%, but it will not be able to do much more. The data is overwhelming. In the first nine months of 2019, the total deficit of the Public Administrations - understood as a balance of net financial operations - was 2.9%, according to the Financial Accounts of the Spanish Economy of the third quarter, prepared by the Bank of Spain and You just published. Recent history shows that between October and December (when the extra pension is paid), the deficit always increases, which means the practical impossibility of closing the year below that 2.9%. Only until September, the Social Security red numbers were 1.5% of GDP and constituted the main black hole of the large Spanish accounts. In the first nine months of 2019, the Central Administration deficit was 1.1% and that of the communities reached 0.7%. On the contrary, local corporations threw a surplus of 0.5%.

Sánchez and his Government will shield themselves in the long months of provisionality, but the explanations do not change reality. The initial deficit target for 2019 was 1.3%, so that the 3% closing It represents a deviation of 20,000 million. Ministers Calviño and Montero - now also vice president and spokesperson - tried to change the forecasts and raise them to 1.9%, but they were not very successful and sent to the Brussels authorities a kind of budgetary trapntojo for 2020 in which they explained that the 2019 deficit would be 2%. A whole exercise of voluntarism that did not succeed either. The EU, which makes its own accounts and has already made progress that will monitor the Government's policy, calculated in autumn that the red numbers of the Spanish public accounts would reach 2.3%.

Negotiation

The economic leaders of the Government are aware of the situation and, now, their main objective is to justify that the deficit did not exceed 3%. From that percentage, it enters into action of the denominated «Excessive deficit protocol», which would also include public debt, which is around 100% of GDP and represents 1.2 billion euros. In practice it would mean that the Spanish economy would once again be intervened by the authorities of the European Union as long as the debt was not significantly reduced, something that could last for five years or even more. Sánchez and his ministers Calviño and Montero, who do agree on this, will make balances so that, in the end, 2019 closes with a deficit below that 3% and, for that, they have some margin. It is small, but it allows certain adjustments, although the old trick of delaying the accounting of some expenses to the following exercise must be resorted to. It is nothing new and there are precedents - Montoro already did it in Spain and other countries, such as France and Italy, have also resorted to that scheme - but it entails dragging a load for the next year, even if it is small.

The problem for the Government is the Budget for 2020 if it intends the quadrature of the circle to attend to the promises made by Sánchez - including the already approved increases in pensions and salaries of the officials - and also fulfill the commitments with Brussels to reduce more than deficit. If the markets perceive that it is not going to happen, the most likely - the experts warn - is that the risk premium, which now touches the 60 basis points, is triggered. This is what happened in Italy, when the Government of ultra Salvini presented an expense budget, which brought the Italian risk premium above 300 points and, in some way, sent it to the opposition.

Nadia Calviño, with more prestige in the circles of European institutions than in Spain, has the mission of achieving a certain flexibility of Brussels with the Spanish numbers. You will get it, but within limits. The European Union will not be softer with Spain than it was with Italy. The European Commissioner of Economy is the Italian Paolo Gentilone and that complicates everything. Giving more facilities to Spain, in pre-Italian Italian elections, would be ammunition for Salvini, something nobody wants.

The situation is uncomfortable for Sánchez, but several experts, including the social democrat José Carlos Díez, see an opportunity for the Government. They recommend extending the current Budgets, already extended, and concentrating on preparing those of 2021. Once approved, they would guarantee Sanchez his stay at Moncloa until 2023. The problem is the political cost for a newly released Government of not carrying out its accounts. Yesterday, the BOE published the rules for preparing the 2020 Budgets, but on Monday Sanchez said he wanted them to be approved before the end of the summer, just when you have to present those of 2021. A problem, a temptation and an opportunity.

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