Brussels approves the Spanish budget plan for 2023 but without extension of energy measures

Green light from Brussels to Spanish budget plan for 2023. The European Commission considers that the project sent in mid-October by the Executive of Pedro Sanchez is in line with the fiscal guidance of the European Union and meets the recommendation that domestically financed current expenditure growth rise next year below potential growth over the medium term, as recommended by the EU before the summer to maintain a prudent fiscal policy. However, he warns that extending the anti-crisis measures, without focusing on vulnerable households and companies, could trigger current spending, the deficit and public debt.

“A prolongation of existing support measures and/or enactment of new support measures in response to high energy prices would contribute to higher growth in state-financed net current spending and an increase in the public deficit and the debt expected in 2023”, alerts the Commission, stressing that Spain plans to make public investments in the green and digital transition and in energy security using European funds and preserving investments at the national level.

Most of the budgetary plans designed by the Eurozone countries are based on a much more positive macroeconomic scenario from that included in the latest growth forecasts for the autumn, when Brussels revised growth downward. In the Spanish case, the macroeconomic table sent to Brussels starts from a growth of 2.1% in 2023 when the autumn forecasts limit the Gross Domestic Product to 1%, with a public deficit four tenths higher. According to Brussels, Spain and the rest of Member States they should focus relief measures on the most vulnerable households and most exposed businesses and withdraw them as energy price pressures ease.

Currently 70% of the measures, according to the Commission, are not specific, a percentage that could skyrocket to 90% next year. “The vast majority of these measures are price measures (two thirds) & rdquor; and therefore “it could distort the price signal and reduce the incentives to contain energy consumption and increase efficiency,” warns the Commission, which estimates the cost of the measures adopted in 2022 at 1.3% of European GDP (1, 6% in the case of Spain).

prudent fiscal policy

Given that a large part of them should expire during the first quarter of 2023, this percentage should foreseeably fall to 0.9% in 2023, although if the Member States choose to extend them -the document does not quantify what will happen in the Spanish case- will shoot at 2%. “There is a clear risk that the fiscal stance will be more expansive than currently expected,” warned the commissioner for economic affairs, Paolo Gentiloni. Among the most indebted countries, Spain is among the advantaged students along with Greece and France, the two countries that receive the unconditionally approved from Brussels. This is not the case in Belgium or Portugal that only partially comply. In addition, there is no opinion, for the moment, of Italy Whose government -just took office a month ago- are urged to present an updated budget draft as soon as possible. According to the analysis, both the Spanish and the Portuguese, French, Greek and Belgian plans will preserve the investments financed with national funds.

As for the states with low or medium debt levelsthe budgetary plans of Croatia (which will join the Eurozone in January), Cyprus, Finland, Ireland, Latvia and Malta are in line with the fiscal guidelines but only partially in those of Austria, Lithuania, Germany, Estonia, Luxembourg, the Netherlands, Slovenia and Slovakia. Brussels warns that the current primary spending financed at the national level by these countries is not the result of temporary and specific support for households and companies most vulnerable to increases in energy prices and for people fleeing Ukraine.

macroeconomic imbalances

The opinions are part of the annual economic policy coordination exercise carried out by the European Commission and which comes accompanied by an analysis of macroeconomic imbalances. The report concludes that it is “justified & rdquor; review in depth the situation of countries such as Spain that already experienced imbalances last year to examine “if these imbalances are worsening, are in the process of being corrected or have been corrected, in order to update existing assessments and assess possible political needs remaining & rdquor ;, points out the Commission, which also clears up doubts regarding the ability of the rescued countries to repay the loan received.

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“The Spanish economy continued to expand in 2022 despite the growing disruptions caused by Russia’s war of aggression against Ukraine, although a rapid slowdown is expected in 2023 amid great uncertainty with downside risks. The balance of public administrations in 2022 has improved, thanks to the good income results, but the high underlying deficit and the high level of debt continue to be a source of vulnerability& rdquor;, assesses Brussels, which considers that despite this environment the sector banking “has remained resilient& rdquor ;.

In general terms, the general evaluation indicates that the projects sent by the Eurozone countries will strengthen the quality and composition of public finances and will contribute to a sustainable and inclusive recovery thanks to investments through the Next Generation EU recovery mechanism that They will foster growth, in particular the green and digital transition, and energy security. The analysis hides, however, clouds due to the uncertainty of Russia’s war in Ukraine and the impact of energy prices.

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