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Brussels – The European Commission decided on Wednesday not to open a case for excessive deficit against Spain despite having closed last year with a budget deviation of 3.6%, six-tenths above the limit set by fiscal rules.
Brussels has concluded that it is not justified to launch a case because the deviation, although not close to the reference threshold, is temporary and will reduce to 3% this year and to 2.8% in 2025, according to its forecasts.
Spain thus avoids having to make the minimum fiscal adjustment of 0.5% of GDP per year (€7.3 billion) that Brussels would have required in case of a case, although it will have to progressively reduce the budget deviation.
“The European Commission, in any case, will continue to monitor the budgetary evolution in Spain and reevaluate the situation in the autumn,” said European Commissioner for Economy, Paolo Gentiloni, in a press conference.
The community executive resumed fiscal cases this Wednesday after four years suspended due to the pandemic and the war in Ukraine, intended to ensure that countries exceeding the limits of deficit and public debt set by the Treaties, of 3% and 60% of GDP, respectively, make adjustments to correct their deviations, under penalty of sanctions if they do not act.
Of the twelve countries exposed to this procedure, Brussels has decided to proceed against seven of them, including Italy, which has the most significant deficit in the EU (7.4% of GDP) and France (5.5%), as well as Belgium, Hungary, Malta, Poland, and Slovakia. Additionally, it keeps open the case it initiated in 2019 against Romania since it has not taken measures to tackle its deficit.
Conversely, besides Spain, the Czech Republic, Estonia, Slovenia, and Finland are spared the case because the European Commission has considered relevant factors such as the public debt situation, economic evolution, or investment in defense.
In the case of Spain, the community executive has based its decision on the expected decline in the deficit this year and the next, despite not meeting the criterion that in 2023 it was close to the 3% reference, i.e., at most five-tenths above.
“Since no additional fiscal adjustment will be required for Spain to bring its deficit below the reference value, initiating an excessive deficit procedure at this time would have no useful purpose,” says the Commission, which warns that it will continue to monitor the Spanish budget situation.
The report recalls that there are “high medium-term risks” to the sustainability of public debt, a factor considered key when evaluating the fiscal performance of countries.
Spanish debt (107.7% of GDP last year) far exceeds the 60% limit and, although it will decrease in the next two years, to 104.8% in 2025, Brussels expects it to rise again and remain around 113% within a decade.
The community executive also warns that, according to forecasts, net primary spending will increase by 3.8% in 2024, so there is a “risk” of non-compliance with the recommendation of a maximum increase of 2.6%.
Brussels has also assessed that public investment in defense has increased by two-tenths of a percentage point compared to 2019, to 0.4% of GDP in 2022, a factor that the new fiscal rules consider mitigating when deciding whether to open a case.
Sources from the Ministry of Economy confirmed that the community executive has taken into account the “substantial and continued” reduction of the deficit, since, although the limit was exceeded in 2023, the objective of the procedure is to encourage corrections and in the case of Spain “it is not necessary” because it is already expected to comply.
They consider that by refraining from opening the case, Brussels “endorses the responsible fiscal management and the consolidation of the balanced growth model through the reforms of recent years.”
Spain thus circumvents a reinforced surveillance exercise over public accounts that had been open for a decade, after the financial crisis of the past decade. Brussels initiated that case in 2009, when the Spanish deficit reached 11.3%, and closed it in 2019, when the deviation had reduced to 3.1%.
The most delicate moment of this period was in 2016, when the European Commission even threatened to fine Spain, then under the government of Mariano Rajoy, for failing to comply with the path agreed with the community authorities, which finally forgave the sanction and also the possible freezing of regional funds. (June 19)