Governor Bank of SpainPablo Hernández de Cos warned this Monday that there is an increase in pensions (about 8.5%) planned by the Government for 2023. and the increase in public salaries agreed with the unions (up to 3.5%) would mean a higher cost of 17,100 million in the first case and 10,100 million in the second case.. According to the calculations of the Bank of Spain, this total of 27,200 million will absorb almost all of the European Commission’s margin of increase in spending to Spain for next year, forcing it to include the remaining items.
“Compliance with the rule set by the European Commission, In an environment where pensions will rise in line with inflation, means the expenses have to be very restrictive on the remaining items“, Hernández de Cos said at the Congress of Deputies, but acknowledged that there was still some uncertainty about how the European Commission would interpret its own rule.
The preparation of 2023 Budgets is exempt from the European Union’s stability rules corset. However, the European Commission Making a recommendation to Spain: primary current expenditure (where almost all items are included except investment and interest payments) Does not rise more than the potential growth of the Spanish economy (about 1%) plus inflation.
The government argues that its Accounts comply with this rule, as it included a forecast of inflation for the next year in the Budget Plan sent to Brussels last Saturday. The Bank of Spain doubts this because it does not know whether it is inflation to consider or the 2% target the European Central Bank is seeking. In any case, Hernández de Cos warns that with the rise in pensions and public wages alone, current spending will rise by 5.5 percent, at the limit of the most generous hypothesis.
The warning is very relevant. In the past, Spain could not have systematically followed the economic policy recommendations formulated by Brussels without suffering further consequences beyond condemnation in the Council of Europe. Not so now. Deployment of European funds depends on its fulfillment. In addition European Central Bank He warned that in case of difficulties, countries will come to their aid through purchases of public debt only if the recommendations of the European Commission are followed.
Missing Compliance
The Governor of the Bank of Spain inaugurated this Monday. Congress of Deputies Discussions by senior officials before the 2023 State Budget Law is passed in parliament. Hernández de Cos stated that the public accounts submitted by the Government would allow compliance with the law. 3.9% deficit target of GDP set for 2023. According to the Governor, this will be possible because in 2022 the evolution of accounts will be much better than expected by the Government (according to the Bank of Spain it will be around 4.3% of GDP, with a deficit of less than 5% as predicted by the Executive) . De Cos explained that this would give the 2023 accounts a ‘fundamental effect’ sufficient to take on higher budget expenditures.
this heavy tax collection Behind this improvement in accounts are those achieved in 2021 and 2022. In any event, the Governor advised the Government to be prudent and not use the higher revenues for greater structural spending commitment. sunken economy – consolidates. The governor recalled the onset of the 2008 financial crisis, which resulted in an extraordinary rise in income due to the real estate boom, which later disappeared. Therefore, he stressed that the anti-crisis measures taken by the Government should be “temporary and focused on the most vulnerable groups”, warning that the reverse would increase inflation and hurt public accounts.
Rental contract
During his appearance, De Cos once again emphasized the ease of reaching an income agreement between workers, businessmen and the public sector to help curb the progression of inflation. Specifically, he stated that only the lowest pensions should increase in 2023 relative to inflation this year (around 8.5%).
The governor acknowledged that so far workers and businessmen have attended. an “implied lease”, with reasonable fees and profit margins. But he warns that this implied agreement could come to an end, as evidenced by the increasing inclusion of wage guarantee clauses in collective agreements and employee incentives. Core inflationThis would indicate a “rapid transfer of energy costs to final prices”. Half of the goods and services that make up the sub-inflation basket (excluding energy and unprocessed food) already rose more than 4% in September, according to the latest CPI data released by the INE, to which the governor cites.
pensions
In his speech before the Congressional Economic Commission, the governor once again referred to pension system reform to emphasize that the measures adopted so far by Minister José Luis Escrivá did not curb or compensate for the increased spending resulting from the repeal of the law. People’s Party laws. According to the Bank of Spain, “The high spending commitments associated with the repeal of the key elements of the 2013 reform have not yet been fully offset by the new measures introduced recently,” adding: “Therefore, increases in pension spending due to aging populations will increase in the future on the income side, on the cost side. or both will require new actions,” as he warned earlier.
interest rates
The President reaffirmed the purpose of the European Central Bank.keep increasing interest To fix inflation expectations at the 2% target, as it started in July and September. However, Hernández de Cos took on the negative consequences this would have for certain groups and public accounts. The Bank of Spain forecasts mortgage increase Up to 14%, adding four points already to the percentage of vulnerable families that are having trouble meeting their payments. It also calculates that higher inflation will already have an additional payment cost of 4,000m euros. public debt interest He said this year (for inflation-linked securities) and the rate hike will increase the weight of interest payments on public debt to GDP from the current 2.2% to 2.7% in 2024.