The government’s difficulty in consolidating stable pacts in Congress and defining a credible budgetary roadmap before Brussels has consequences for the recovery plan. A situation that is evident in the delay that Spain is accumulating with respect to the planned schedule for disbursement of the Next Generation fund. The Spanish executive must get moving to request, before the end of the year, the fifth and sixth installments of European funds, scheduled for 2024. Two disbursements, which together, leave in the air 11.6 billion euros.
These resources would constitute the main pillar to support investments next year if another budget extension and any delay will have consequences.
The initial planning of the Spanish recovery plan provided that the fifth payment would be requested in the first half of 2024 to request, in the second half, the sixth payment. They are associated with 7.6 billion euros of Next Generation funds in the first case and 4,000 in the second. In addition, the sixth tranche includes, for the first time, the disbursement of credits from the pandemic exit plan, in an amount of 14.4 billion in loans on favorable terms.
It is true that Brussels tends to be flexible on the deadlines for requesting payment for recovery plans. Delay within the same financial year is not a problem in itself, although the same does not happen if this limit is exceeded from one year to the next. In other words,Spain must request the fifth and sixth payments by 2024, the exercise to which it had committed. Which leaves it barely four months to respect the schedule of the two disbursements and the associated reforms and investments.
For practical reasons, government obligations are piling up. You have until the end of the year to meet the schedule that has been set and completed for you. the nearly 120 milestones and objectives associated with this funding. A business in which it must be considered that the complex parliamentary arithmetic makes it difficult to conclude agreements between political parties, to carry out reforms and to respect commitments with Brussels.
And to display a button. The cause of this delay actually lies in the fourth payment. The Sánchez executive requested the fourth tranche of funds, with a little over 10 billion euros, with a view to 2023, a few days before the end of the year. The non-validation in Congress of the unemployment benefit reform After Podemos refused in early 2024, it blocked the receipt of full payment. The European Commission could apply a partial payment and withdraw part of the funds to Spain.
From there, a whole series of mechanisms were put in place, which gave the Sánchez government up to six months to carry out the reform that was underway. First, the European Commission had an additional month to carry out its assessment. So, Spain negotiated an extension, arguing that some elements needed to be changed purely technical plan. And finally, in an attempt to avoid interfering in the European elections, Brussels softened its verdict for a few days and finally approved the payment in June. A disbursement that came six months later, with the recently approved unemployment benefit reform and a slight reduction in the amount of the payment that, in any case, was far from the impact that the failure to respect the target set at the beginning of the year would have had.
The disbursement of Next Generation EU funds is associated with the implementation of a series of reforms and investments that require agreements between political groups. And regarding the fifth payment, tax reform is one of the top priorities to be carried out. Which also promises to be one of the biggest headaches for Spain, after the Ministry of Finance declared the reform finished with the increase in taxes.
In its country-specific recommendations published last year, the European Commission was very direct with Spain. On the one hand, it urged it to tackle “Emerging delays” in the recovery plan. On the other hand, he affirmed that “tax reform must be part of Spain’s budgetary consolidation strategy.” In passing, he urged the Government to implement the reforms initiated in the Recovery Plan to modernize the tax system, make it more efficient and adapt it to new trends.
These are two of the most forceful messages from the European Commission. The Community Executive has also suggested some ideas to the Government to advance its ambition. It has advocated measures such as increasing VAT and reminded it that it has the possibility to consider new environmental taxes. “The Tax reform must be part of the consolidation strategy “Spain’s budget,” the European Commission said in its analysis.
Even though the government does not agree so much with Brussels. Following this opinion, the Minister of Economy, Carlos Corpo, came out. His response to the slap on the wrist from the European Commission was rather negative. “We think that we have already made all necessary decisions to, precisely, respect the obligations implied by this stage of the fifth payment,” he assured.
But the final word on the matter will ultimately come from Brussels, which is carrying out such an assessment. Here, another time window could open for negotiations between the government and the Community executive that, beyond doing Spain a favour, could further jeopardise compliance with its timetable.
GDP will grow by 3.1% until 2026
The Ministry of Economy estimates that the recovery plan will lead to a growth of 3.1% of the Spanish GDP in 2026. An impact that will trace an upward curve up to 4% in 2031. However, the countries are not obliged to claim the loans included in their plan. Spain was very vocal when it initially assured its intention to request the full financing, that is, the 163 billion, 83 billion in loans and 80 billion in funds. The recovery plan itself was a step in itself since it was the first common debt issue of the EU and if the twenty-seven countries managed to agree on this point, it is because the economic blow of COVID would be enormous. To the countdown, we must add another horizon, that of 2026, the date on which the recovery plan should end. Without possible extensions, as stated by the Commissioner for the Economy, Paolo Gentiloni, despite the difficulties of the countries in absorbing so much funding in such a short time.
