Spain
Brussels Warns Sánchez on the Major Risk of Spain's 2020 Budget: "It's four times the planned expenditure"
The European Commission send a letter to the Spanish Government warning of their failure to comply with its planned deficit and asking for a €7.5 billion readjustment.

The European Commission warned the Spanish government that its 2020 budget plan entails a "significant risk" of deviation from the fiscal adjustment required by Brussels for 2020 and asked the Sánchez administration to send updated accounts as soon as the draft is sent to Congress. In addition, the EC warns that the expenditure forecast in the draft has number four times over the 'cap' imposed by Europe. Brussels is asking Spain to reduce the deficit with a budgetary adjustment - with an increase in revenue or a reduction in expenditure - of around 7,600 million euros.

In a letter sent to the acting Minister of Economy, Nadia Calviño, the commission warns that the plan sent on 15 October would not respect the European requirements of adjustment of the structural deficit, control of public expenditure and reduction of public debt. Sending such a letter is the first step in the procedure by which the Commission monitors the budgets in the Eurozone and alerts the countries that are at risk of deviating from Community rules, but it does not mean that the accounts are rejected.

In it their letter, the Commission warns that the budget draft points out to a structural deficit - which does not take into account the economic cycle - would only be reduced by 0.1% of GDP, which "falls short" of the 0.65% reduction required by Brussels by 2020. Spain exited the excessive deficit correction procedure this year after bringing its nominal deficit below 3% in 2018 (to 2.5%). The country is now in the preventive stage, where the Commission no longer sets targets for reducing the nominal deficit, but focuses on the progressive correction of the structural deficit - it does not take into account the effect of the economic cycle.

The forecast of an increase in public spending of 3.8% is above the recommended maximum increase of 0.9%, warns the European Commission

Brussels calls on Spain to reduce this deficit by 0.65% of its GDP, which would be equivalent to a budgetary adjustment - with an increase in revenue or a reduction in expenditure - of around 7.6 billion euros. The Commission also indicates in the letter that it foresees an increase in net primary public expenditure of 3,8 %, above the recommended maximum increase of 0,9 %.

The EU states that these elements 'point to a risk of significant deviation from the recommended fiscal effort in 2020, and throughout 2019 and 2020 as a whole'. In addition, it foresees that Spain will not comply in 2020 with the European rule that requires public debt to be progressively reduced up to 60% of the GDP threshold set by Community standards. In addition, they underline "the importance of Spain submitting an updated draft budget plan" that guarantees compliance with Community requirements and invites the Government to send it "as soon as the draft for 2020 is sent to the Spanish parliament".

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On 15th October the government sent Brussels its Budgetary Plan for 2020 which is essentially an extension of the current budget since the 2019 accounts did not make it through Congress and the proximity of electoral repetition makes it impossible to have a new draft in time.

The plan contemplates a fiscal environment without additional measures. It eliminates the tax incentives provided for in the failed 2019 budget that was reported to Brussels last year - such as the digital rate or financial transactions - but incorporates the 0.9% pension increase promised by the government, among other spending measures. It also includes an updated macroeconomic scenario, which lowers the growth forecast to 2,1 % and keeps the deficit forecast at 2 % for this year.

PSOE says that the EC warning is "easily remedied".

Adriana Lastra, the PSOE spokeswoman in Congress, believes that the warning given by the European Commission to Spain is "easily rectifiable".

In statements before Congress, Lastra has argued that the public accounts sent to Brussels "have to do with inherited budgets" and therefore the budget plan is based on them, while praising the "respect" that "every European woman" has for Spain's acting Minister of Economy, Nadia Calviño.

"I am convinced that what they say from the European Union is something minor and easily fixable," she said. 

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