The European Commission has asked Spain to adjust its budget by 0.7 percent of GDP to stay on target for a 3 percent public deficit within the Stability and Growth Pact. It also issued recommendations aimed at keeping a prudent fiscal stance in 2024, limiting the nominal rise in nationally funded net primary expenditure to a maximum of 2.6 percent, and winding down energy aid by the end of 2023. The focus is on reducing energy dependency on fossil fuels, accelerating Next Generation EU recovery funds, and expanding affordable energy efficient social housing. The policy suggestions follow Brussels guided procedures in the annual coordination process tied to the Community Steering Committee, which reaffirmed that Spain remains among EU countries facing macroeconomic imbalances, though with reduced vulnerability.
Spain’s reform program includes many requests previously raised by both the European Commission and the Eurogroup for euro area governments. The first priority is to phase out general energy support by year’s end and use the resulting savings to keep narrowing the public deficit. The analysis also recommends ensuring that any future energy price shocks trigger temporary and targeted measures that protect vulnerable households and businesses, remain affordable, and preserve incentives for energy savings.
Brussels continues to emphasize Europe’s leadership in this program. It stresses accelerating the implementation of Next Generation reforms and investments while maintaining adequate administrative capacity to manage an enlarged plan. The commission advises protecting nationally funded public investments and ensuring that bailout grants and other EU funds support green and digital transitions. Looking beyond 2024, the government is urged to pursue a medium term fiscal strategy that combines gradual, sustainable consolidation with investments and reforms, aiming for prudent medium term budgets and higher sustainable growth.
The Community Manager also calls for a faster shift away from fossil fuels and a quicker deployment of renewable energy. It highlights modernizing permitting procedures, supporting permitting authorities, improving grid access, investing in energy storage, strengthening electricity transmission and distribution, and expanding cross border electricity interconnections. The document further urges Spain to boost the availability of energy efficient, affordable social housing by renewing and speeding up building electrification and promoting electromobility.
macroeconomic imbalances
The European Commission again places Spain in the group of countries with macroeconomic imbalances alongside Germany, France, the Netherlands, Portugal, Romania and Sweden. It notes that vulnerability has diminished in Germany, France, Spain and Portugal and suggests this trend may lead to a favorable ruling if it continues next year. Greece and Italy are marked as experiencing extreme macroeconomic imbalances, though improvements in vulnerability are noted thanks to policy progress. Cyprus and Hungary remain in imbalance, with the Czech Republic, the Baltic states, Luxembourg and Slovakia viewed as closer to balance.
The assessment includes a new post program audit that confirms Spain’s economy has shown resilience amid disruptions from Russia’s war in Ukraine and posted solid growth last year. As spring forecasts advance, the Commission expects ongoing growth through 2023, albeit at a slower pace than the previous year. Public sector analysis shows improved revenue results in 2022, though deficits and debt remain high. The banking sector faces new challenges from higher inflation and tighter financing conditions, yet asset quality improved and profitability rose in 2021 and 2022.
[Source: European Commission]