July 29, 2021

The EU amends all of Sánchez's accounts

The EU amends all of Sánchez's accounts

They may not even be approved, but the European Commission has already begun to put the magnifying glass on the Spanish budgets. According to the economic forecasts published yesterday by the Community Executive, Spain will close next year with a public deficit of 2.3%, three tenths above that predicted by the Government and eight tenths of the agreed path, so far, with the European authorities. In addition, the pace of economic growth slows down. Brussels predicts a reduction of two tenths in both 2018 and 2019 -2.6% and 2.2% respectively- with respect to its previous forecasts.

This mismatch in budgets is due to several causes: inflated revenues, some public expenditure items undervalued in some chapters and the ambivalence of certain star measures. In this chapter, Brussels shows a special prevention regarding the consequences of the increase of the interprofessional minimum wage up to 900 euros per month. According to the calculations of the European technicians, this increase can cause a slowdown in the creation of between 70,000 and 80,000 jobs in the next two years, although the global wage bill will also increase 0.35% in this same period of time. which will result in greater purchasing power of the population, greater savings and increases in income through greater contributions to Social Security, the so-called second round effects. Despite this, the accounts still do not fit. Or at least, not completely. The Spanish Executive ensures that this rise in the minimum wage will have an effect on the collection of 1,500 million euros while diplomatic sources are less optimistic and calculate that this amount will be about 1,000 million euros, «slightly lower» to the numbers of the Government.

Brussels also does not believe in the revenue forecasts of the Spanish Executive. The technicians of the Commission estimate that 20% less than what the Government has secured will be collected through the so-called "Google tax" and the tax on financial transactions and that the plan to fight against fiscal fraud will only succeed in bringing about half of what was promised. In the expenditure chapter, Brussels also considers that Economía has not sufficiently quantified the consequences of the end of the pharmaceutical copayment for retirees and the new schooling measures. According to the report of the European Commission, the new taxes and the increase of some rates will only "partially compensate" the increase in spending.

But everything is in the air. The community executive mentions in his report that "some of the planned spending measures may not be fully implemented" and recognizes that his analysis of the Spanish economy is "cautious". Last Monday, the Economy Minister, Nadia Calviño, opened the door to an extension of the 2018 budgets with certain "adjustments" in the form of the tax increase reported to Brussels, although for the latter the support of the Congress.

Although the numbers do not match, everything indicates that the Government can benefit from a particularly benevolent conjuncture. In a press conference monopolized by the Italian case (whose public deficit can overcome the barrier of 3% in 2020), the Commissioner for Economic Affairs, Pierre Moscovici, was particularly conciliatory with Spain and recalled that this type of discrepancies between Brussels and the capitals are frequent. The figures, however, do not deceive. Its European partners have asked Spain for a structural effort of 0.65% of GDP (without taking into account the favorable winds of the economic cycle) while the Government of Sanchez hopes to reach a figure of less than 0.4% that Brussels would end accepting reluctantly. However, the forecasts of European technicians ensure that the structural effort will be very far from this range: between 0 and 0.1% of GDP.

This is not the first time that discrepancies have occurred in this area between Spain and the Commission. It has been the bread of every day after a decade under the corrective arm of the Stability and Growth Pact for exceeding the 3% threshold. In the report published yesterday, the Community Executive reproaches posthumously the Government of Mariano Rajoy to remember that the reduction of the deficit during this year was possible thanks to the vigor of economic growth, as certain measures such as the revaluation of pensions, increases salaries for officials and lower taxes for lower incomes did not help this goal. Sanchez, far from amending Rajoy, has continued this path.

But the things can change. According to the forecasts of yesterday, the public deficit of this year will close in 2,7% and Spain will get to leave the black list of the countries over 3%. European standards now place a greater emphasis on structural effort, which puts Sanchez in a difficult predicament.


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