ECONOMY

Brussels lowers Spain’s public deficit forecast

European Commission will demand more adjustment and start proceedings for constant target misses

The European economic commissioner, Pierre Moscovici.
The European economic commissioner, Pierre Moscovici.EFE

The European Commission does not expect Spain’s public deficit to drop below 3% of gross domestic product (GDP) before 2018.

The imbalance will be 3.9% this year, and 3.1% in 2017, according to the spring report that the Commission presented on Tuesday.

Spain recently announced that its 2015 deficit was in the 5% range, amply exceeding its target of 4.2% agreed with the European executive for last year.

Good news

C. P.

The EC’s spring report is full of good news for Spain: GDP is growing significantly above the euro zone average, and both financial conditions and oil prices are helping this growth.

The real trouble lies in the old problems that Spain cannot shake off: unemployment continues to be very high even though it has fallen slightly; thepublic deficit is worse than anywhere else in the euro zone, and public debt has grown rapidly – which, combined with private debt, represents an enormous source of vulnerability in a situation of risk.

While Brussels’ expectations with regard to economic output are almost identical to the government’s (Madrid is forecasting 2.7% growth in 2016 and 2.4% in 2017, while the EC posits 2.6% and 2.5%), it has differing views on the deficit.

Given the difficulty of bringing this figure down to target levels in time, Brussels will give Spain one extra year to do so. But it will also demand additional adjustment measures and initiate proceedings over Spain’s continued failure to meet its deficit targets in recent years.

Even though such a proceeding could theoretically result in a hefty fine of over €2 billion, it will very likely be merely symbolic as long as Madrid formulates a petition explaining the reasons for the target miss.

Even if there are ultimately no fines, the Commission will demand further adjustment measures and exert added oversight. The Spanish government will have to file quarterly reports listing the progress being made.

The political instability in Spain, which has had an acting government since the inconclusive election of December 20 and is facing a fresh vote in June, has delayed EU decisions regarding the Spanish economy. Brussels is aware that an acting government cannot enforce controversial decisions, and new budget cuts just as Spain is emerging from a protracted crisis would be sure to create controversy at the domestic level.

Brussels does not want to look like it is influencing the outcome of elections in a member state

With Spain in the middle of a fresh election campaign, Brussels is walking a fine line: it does not want to look like it is influencing the outcome of elections in a member state, yet it needs to act firmly to ensure that the Stability Pact is not mortally wounded.

Working in Spain’s favor is the fact that the European Central Bank and the International Monetary Fund (IMF) are both asking for flexibility, and that there are other countries in a similar situation.

English version by Susana Urra.

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