Brussels budget scrutiny in the Eurozone

Take for instance, Spain. Brussels has identified shortcomings in delivering enough structural efforts. It has also cast doubts on the expected nominal rise in GDP, foreseeing lower tax receipts than the ones predicted by the Spanish government. It also expresses muted criticism at the lack of effective measures to curb the deficit in line with commitments entered for 2015 and 2016.

Some argue the hole might amount up to 40 billion. Yet the Commission refrains from providing any clear indication on the size of potential slippages or addressing any concrete recommendation on measures to prevent them. Thus, the review amounts to little more than a series of doubts everyone is well acquainted with.

The difficulties for reining in the deficit are widely acknowledged. The economy is painfully overcoming a lasting recession and there is little hope it could achieve some sort of recovery before 2015. This adverse outlook will undoubtedly weigh on cyclical expenditure and subdued income.

Furthermore, severe spending slashes in past budgets leave scarce room for implementing further sizeable cuts. Investment appears dwarfed to utter irrelevance. Civil servants have witnessed a substantial reduction in their salaries. Subsidies and transfers to enterprises and families have been markedly trimmed down. The huge debt adds additional pressure to public finances. To make things worse, the extremely low inflation rate will curtail tax receipts and increase the debt-servicing burden.

No wonder the European Commission has delivered a low-key opinion. In the absence of growth, no fiscal adjustment will feed into budgetary balance. Cutting down spending and raising extra income can hardly meet that challenge when the current economic performance seems so sluggish.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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