Spain risks missing 2015 and 2016 deficit targets — Brussels report

Pierre Moscovici, the European commissioner for economic and financial affairs, was very clear on Monday: Spain runs a serious risk of missing its deficit target this year and the next, and whatever government emerges from the general election on December 20 will have to adjust the budget accordingly.

But less than 24 hours after Moscovici’s department issued its report, the European Commission gave him a symbolic slap on the wrist by pointedly failing to take any decision regarding the 2016 Spanish budget.

Instead, Europe’s executive body will make a decision “in the coming days,” which in European Union jargon means that some of the 28 Commission members likely oppose Moscovici’s negative verdict on Spain.

Spanish Economy Minister Luis de Guindos and his German counterpart, Wolfgang Schäuble, accused Moscovici of being too tough on Spain

On Tuesday, the commissioner was criticized by Spanish Economy Minister Luis de Guindos and by his German counterpart, Wolfgang Schäuble, who accused Moscovici of being too tough on Spain.

EL PAÍS has obtained a copy of Moscovici’s report, which shows that Spain’s budget proposal for 2016 elicits serious questions from the Commission’s economic and financial services.

The following are some of the major points contained within the document:

1. Regional governments: The Spanish budget was adopted on July 31 but it does not include specific measures to be taken by regional governments, which makes the bill seem incomplete.

2. Different growth forecasts: Brussels believes that Spain will grow 3.1% in 2015 and 2.7% in 2016 – in line with the IMF, which offers figures of 3.1% and 2.5%. Meanwhile, the Spanish government is talking about GDP growth of 3.3% this year and 3% in 2016. The document finds these figures optimistic, and underscores the risks posed by outside factors such as a slowdown in the emerging economies. Spain’s exposure to the Latin American market is of particular concern to Brussels.

Spain’s exposure to the Latin American market is of particular concern to Brussels

3. Criticism from Airef. The report echoes criticisms voiced by the Independent Authority for Fiscal Responsibility (Airef) to the effect that the proposed budget could be different from the final version, with more of an accent on consumption and less on investment, and less job creation than expected. The latest modifications to the budget already show that regions will play a bigger role in the deficit than the national and local governments.

4. Risks of missing deficit targets. The document notes that Spain missed its 2014 target. This year, Moscovici’s department believes that the Spanish deficit will reach 4.5% of GDP – compared with the target of 4.2% – and 3.5% in 2016, seven tenths of a point above the target of 2.8%.

5. Sky-high debt levels. Spain says the public debt burden will stabilize at 98.7% of GDP in 2015 and fall to 98.2% in 2016, thanks to strong GDP growth and reduced borrowing costs. But the Commission is expecting higher debt levels due to different GDP growth forecasts.

6. Spending. The report highlights public savings stemming from pension reform and spending cuts at the local and regional levels. But it sees “implementation risks” in some of the measures, with a net effect lower than what the Spanish government is predicting.

7. Structural deficit. Spain expects an improvement of 0.8 percentage points in the structural deficit – which adjusts for business cycle swings and temporary measures. But Brussels believes that there will be a 0.5% deterioration as a result of a different assessment of some one-off operations, such as losses caused by the financial bailout. The report asks Spain for a greater effort after falling short of the target for two years in a row.

8. Reforms. Spain has made progress on issues such as mechanisms to cap regional health spending. But Brussels states that the design of incentives is still incomplete and that regional governments have yet to subscribe to this tool.

9. Verdict: risk of non-compliance and necessary measures for 2016. The document states that Spain runs the risk of failing to comply with the Stability and Growth Pact (SGP), a set of rules for sound public finances and coordinated fiscal policies. This is exactly the opposite of what the Spanish and German economy ministers said on Tuesday. The report asks Spanish authorities to execute the 2015 budget strictly and to adopt the necessary measures to ensure that the 2016 budget complies with the SGP.

10. Corrections in 2016. The report criticizes the lack of specific measures regarding regional government action in the 2016 budget proposal. It also urges the new government that comes out of the December 20 elections to correct this shortcoming next year.

English version by Susana Urra.