Barely 10 hours after learning about the municipal and regional disaster of 28M, the Prime Minister, Pedro Sánchez, announced his other electoral appointment to take over the Moncloa palace. Whether it is the president of the PP, Alberto Núñez Feijóo, or the current president of the Government who wins the elections, Spain faces a series of unavoidable economic challenges. Both at the European level, with the Spanish presidency of the Council of the EU in the background and the reform of fiscal rules; and at the local level, with budgets for 2024 that are still in limbo.
“It will have to face a much stricter analysis of its accounts and the sustainability of its debt, especially from 2024 with the approval of the new framework of fiscal rules, and a necessary acceleration of the disbursement of European funds”, explains Enrique Feás, Principal Investigator at the Elcano Royal Institute.
The Minister of Finance, María Jesús Montero, announced during the presentation of the latest General State Budget that the Government would not enter into the necessary procedures to prepare the public accounts for 2024. With this statement, Montero took it for granted that, with elections Scheduled for the end of the year, the accounts would be extended until at least part of next year.
The change of scenery that sets the elections for the end of July threatens to change these plans. In this new framework, there would be more than enough material time to prepare budgets in due time and form so that they are approved before December 31, as long as there are sufficient parliamentary majorities for it.
The law contemplates that at least three months before the end of the fiscal year, the Executive may present the public accounts for the following year in Congress. After the presentation, the procedures begin in the Cortes Generales, with the aim of having them fully approved before the end of the year. Another alternative would be to approve a new budget for the current year (2024, in this case) if the parliamentary majorities allow it, as happened with the 2012 budgets, which were approved by the PP government in the first semester of that year. anus.
Return to fiscal containment
Brussels endorsed the deficit reduction plans presented in the latest Stability Plan that the Government sent to the European Union, according to Economic Affairs. However, the Commission has demanded that Spain begin to reduce its deficit next year. “Large investments are assured, what remains to be seen is how to manage the reduction in spending and how to achieve the community deficit and public debt targets,” says Carlos Balado, Professor at OBS Business School and director of Eurocofín.
Both the forecasts of the Government -which estimates that the deficit will close 2023 at 3.9%-, and those of the European Commission -4.1% of GDP- are above the 3% demanded by the European fiscal rules, for so the incoming government will have to make budgetary adjustments.
The European Union will reopen excessive deficit procedures in April of next year, in preparation for the return of fiscal rules, paused after the pandemic. Brussels recommended that Spain limit the increase in primary public spending to a maximum of 2.6% in 2024 to achieve the cut in the structural deficit of 0.7% that it is asking for that year. This adjustment is equivalent to a cut of 9,289 million euros that the next government that comes out of the polls will have to face.
Brussels claims to close the gap and, for this, asked Spain in its fiscal recommendations to reduce the aid deployed during the energy crisis. Cutting these expenses, or at least focusing them on the most vulnerable sectors, would require an effort of 0.6% of GDP, some 8,000 million euros, by reducing subsidies and lowering energy taxes.
Energy costs, and therefore the CPI, have chained months of moderation since the peaks reached in summer. In Balado’s opinion, this will make the withdrawal of aid intended to alleviate, precisely, the rise in the price of energy less traumatic. The director of Eurocofín affirms that, in addition, the European aid and its impulse to the growth of the economy will compensate the effect of the withdrawal of aid.
Finalize the deployment of European funds
Almost 90,000 million of the 140,000 million euros linked to Spain by the funds still remain to be disbursed Next Generation EU, most of them in the form of soft loans with low interest. In principle, an electoral campaign does not have to imply an interruption of European funds, “except for those strictly linked to specific legislative milestones, since some laws are paralyzed by the dissolution of the Cortes,” says Feás. In the latter case, they would only delay until the formation of a new government, he says.
Something more than the European presidency
The elections will take place just 20 days after Spain took office of its fifth rotating presidency of the Council of the European Union on July 1. In community circles it is stated that the European presidencies are a good opportunity for a country that seeks to lead political changes within the Union to take the reins of these transformations.
In this sense, the Spanish presidency was scheduled to discuss important issues, such as matters related to the invasion of Ukraine, the reform of the European electricity market, the relaunch of relations with Latin America or, in the economic sphere, the reform of fiscal rules or the articulation of some type of European sovereign wealth fund to undertake structural investments.
Although the new fiscal rules will maintain the numerical objectives of the old ones, that is, reaching a public deficit of less than 3% and that the debt does not exceed 60% of GDP; Europe will discuss in the next semester how these objectives will be achieved.
The position of the Commission, and of countries such as Spain, is based on reaching the fiscal objectives in a consensual manner between the States and Brussels, in addition to accompanying spending cuts with investments that support economic growth. Critical voices deny the substitution of numerical rules, focused on mandatory minimum reductions in debt or deficit, by a structured process.
This budding debate was one of the battle horses of the Spanish presidency. Although there is a history of elections in the midst of a presidency of the Council of the EU, such as France in 2022 or the Czech Republic in 2009, Enrique Feás, principal investigator at the Elcano Royal Institute, assures that the electoral advance “will reduce the visibility of Spain in the major European debates in the coming months”.
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