Morgan Stanley | The European Commission announced the end of the EDP (excessive déficit procedure) for Spain. This is good news but already expected by the markets. With growing risks in the rest of Europe, our analysts believe that Spain will remain the macro outperformer over the next few quarters thanks to its good fundamentals, with a gradual relative improvement in public finances, reducing debt and the deficit below 3% (the main reason for ening the EDP).
European Economics Commissioner Pierre Moscovici confirmed on Wednesday that the European Commission will recommend that Spain exit the Excessive Deficit Mechanism in June. He did not specify exactly when the recommendation will be published, but indicated that it will be included in the Commission´s Spring Package, due to be published early next month. Technically the decision must be ratified by the member states of the Union, but this is seen as a formality.
BBVA Research | For 2017, the economic cycle is expected to continue correcting the deterioration in Spain’s public accounts, but in a scenario without changes in fiscal policy, the shortfall would decline only to 3.6% of GDP, and would exceed the budgetary target set at 3.1%. Further adjustments will be required to ensure a durable correction.
In the last few years, Spain has halved its deficit and emerged from a recession and the threat of a bailout which could have pulled all the eurozone down with it. Furthermore, it is now one of the countries with the highest growth – when the rest of the eurozone is still dragging its feet eight years after the start of the crisis – and unemployment is trending lower. But while caretaker Economy Minister Luis de Guindos keeps repeating Spain may not be sanctioned for non-compliance with its deficit target, everything indicates this will happen at the beginning of July.