Spain outlines national recovery plan as Brussels urges reforms

The eurozone continues to fight against economic collapse as the coronavirus pandemic rages on, but Brussels is already looking at the risks that will come later: more public and private debt, frozen wages, and a social impact that has not yet been fully felt.

And Spain stands to suffer more than most from these imbalances. On Monday, the European Commission urged Spanish officials to show “a strong commitment to reforms.”

“We are on the right track, but we still need to work together in the coming weeks,” said the EU’s Economy Commissioner Paolo Gentiloni following the presentation of Spain’s national recovery plan by Economy Minister Nadia Calviño, who is also one of Spain’s four deputy prime ministers.

Member states are due to submit their final plans from the second half of February, as the EU prepares to start raising part of the money for its ambitious coronavirus recovery fund, which will inject up to €800 billion into the European economy. Around €140 billion of this amount is earmarked for Spain, making it one of the biggest recipients of grants and loans.

Brussels is hoping that this aid will help relaunch activity, but also correct existing imbalances that are “at risk of deepening.” On Monday the Eurogroup – a meeting of European finance ministers – held a discussion on macroeconomic imbalances in the euro area ahead of the rollout of the Recovery and Resilience Facility, the instrument at the heart of the recovery plan. At the meeting, Nadia Calviño gave a presentation noting that Brussels already has 28 of the 30 reform packages that Spain is planning to launch, and that the other two, covering the labor market and pensions, are on their way.

The minister said she was trying to convey “the sense of urgency” felt by the Spanish government. Calviño’s presentation was described by Commissioner Gentiloni as “brilliant” and “comprehensive,” while Eurogroup president Paschal Donohoe called it “excellent.”

But Brussels is taking a very close look at Spain, where it has estimated that the economy shrank 12.4% in 2020. Gentiloni said that, just like other countries, Spain is being asked for “a strong commitment” to reforms through specific goals that will require regular progress reports. There are three areas of reform that are of particular interest to Brussels: the labor market, pensions and market unity.

This will still require weeks of negotiations, as recovery plans get adjusted, analyzed and ratified. The plans will need to be approved by European officials, who have given themselves three months to adopt decisions on each plan. Spain will not receive its first €10 billion in funding until the spring at the earliest.

Labor reform

Labor reform has been a touchy subject for the Spanish government, which is made up of a center-left coalition of the Socialist Party (PSOE) and Unidas Podemos. After initially arguing over the need to repeal the 2012 legislation introduced by a previous conservative administration, the coalition partners have reached an internal agreement on the plan they will send to Brussels, according to executive sources familiar with the document.

The sources listed a few key elements, such as reorganizing job contract categories and supporting long-term hiring in a country with very high temporary job rates. But the document is still a statement of intention and a more detailed version will have to be debated with unions and employers before it is taken to parliament.

The document will include sensitive issues such as outsourcing, the status of delivery riders, and job retention schemes as an alternative to layoffs. The suggested reforms will be framed as necessary to end the duality of the Spanish labor market, where there are two distinct worlds: one with employees on long-term contracts with good conditions, and another with workers with temporary, precarious jobs, in addition to the self-employed who have their own set of demands.

Pension reform

The EU Commission is also very interested in Spain’s pensions system, but reaching a domestic deal on this subject will be harder. There is an internal battle over a pledge by the Socialist partner in Spain’s government to raise the number of years of Social Security contributions (from 25 to 35 years) to calculate pensions. The unions are threatening action against the move, and the government has called union leaders to a meeting on Tuesday to explain its plans ahead of delivery to Brussels.

Even after Brussels’ review, all the proposed reforms will have to go through Spain’s parliament to become law, and that is where the real battles will take place.

English version by Susana Urra.