Brussels sees the Government’s first calculations on the pension reform as optimistic but will wait to know all the elements before a final evaluation
The European Comission approved this Monday a positive preliminary evaluation of the second subsidy payment requested by Spain (of 12,000 million euros) within the framework of the Recovery and Resilience Mechanism (MRR), the key instrument of ‘Next Generation EU’.
On April 30, 2022, Spain submitted to the Commission the request for this payment based on the achievement of the 40 milestones and objectives established in the Council Execution Decision for the second tranche, including labor reform and the first part of pensions (automatic revaluation with the CPI and incentives to extend working life), as well as other measures and investments in the areas of ecological transition, regulated professions, digital connectivity and R&D . Other areas covered by the achieved targets are health, education, support for vulnerable groups, entrepreneurship and micro-enterprises, the prevention of tax fraud and ecological taxation (tax on single-use plastics), as well as effective and sustainable public spending, according to the statement issued by the European Commission.
The disbursement of this second tranche -the largest of those planned for Spain, until 2026- could take place from the end of julyOnce the evaluation of the Economic and Financial Committee (CEF). With these 12,000 million it will already rise to 31 billion the total number of disbursements to Spain under the ‘Next Generation EU’ mechanism, approximately 45% of the nearly 70 billion in grants allocated to the country. Last August, Spain received an advance of 9 billion and in December, the first disbursement (10 billion), linked to the fulfillment of objectives until June 2021. The second disbursement (12,000 million) is linked to the fulfillment of the scheduled milestones and reforms, as a guideline, until December 2021.
“Today I have good news for Spain. We believe that Spain has made sufficient progress in executing its national recovery plan to receive a second Next Generation EU payment. Once the Member States have given the green light, Spain will receive 12 billion euros,” said the President of the European Commission on Monday, Ursula von der Leyen.
The pension reform, under observation
In general, in its preliminary report the European Commission considers that “completed satisfactorily” the 26 reforms and 11 investments committed by Spain as a prior condition for the approval of this second disbursement of 12,000 million. However, the first two measures committed to and fulfilled in terms of pensions –update with the CPI and incentives to extend working life- raise important doubts in the European Commission from the point of view of the sustainability of the system.
In particular, in its preliminary report, the European Commission assumes the calculation of the Minister of Social Security, José Luis Escriváwhich estimates that the indexation of pensions with the CPI will mean greater spending of up to 2.7 points of GDP in 2050. However, consider too optimistic the calculation of the minister who foresees savings in the system of between 1.1% and 1.6% of GDP in the horizon of 2050 as a consequence of the measures aimed at increase the effective retirement age.
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Nor does the European Commission share the calculations that Escrivá has made on the new sustainability factor (Intergenerational Equity Mechanism). Contrary to what the ministry estimates, Brussels does not share the impression that this new sustainability factor will be “fiscally neutral” with respect to the one inherited from the PP, which it replaces. “The Commission services consider that it is likely that [el nuevo mecanismo] lead to a significant increase in public spending as a percentage of GDP over time,” the preliminary report states.
In any case, these observations have not prevented Brussels from considering that the milestone relating to the first two reforms of the pension system (indexation and lengthening of working life) has been “satisfactorily met”. The European Commission will wait for the Government to complete the rest of the pending reforms by the end of the year (new self-employed regime, raising of the maximum contribution base Y extension of the calculation base period above the current 25 years) and for the Spanish Executive to present its own overall budget assessment of all the reforms before Brussels issues its own final opinion on financial sustainability of the changes approved in Spain.