Brussels warns Sánchez of “very difficult” deficit and debt situation and calls for “credible strategy” for adjustment


Brussels has been giving the new government of Pedro Sánchez economic homework to do from the first day of his mandate. Ursula von der Leyen’s Commission warned on Tuesday that Spain’s fiscal situation is “very difficult” due to high deficit and debt levels and called for “a credible medium-term fiscal strategy”.

In the absence of new adjustments, the EU executive could open a sanctioning procedure against Spain for excessive deficit in spring 2024, since next year the EU’s fiscal discipline rules, which have been suspended since the outbreak of the Covid-19 pandemic in March 2020, will be applied again.

The Commission has issued this warning about Spain as part of its assessment of member states’ budgetary plans for 2024. In the case of Spain, the government of Pedro Sánchez sent Brussels a budget extension as it is still in office. For this reason, the EU executive is calling on Spain to submit a complete budget as soon as possible.

In any case, the team of the commissioner for economic affairs, Paolo Gentiloni, has assessed Spain’s extended budget. Its conclusion is that this budget extension would comply with the EU’s recommendations, as it envisages the automatic withdrawal of all aid aimed at alleviating the impact of the double energy and food crisis on 31 December 2023.
However, President Sánchez has already announced in his investiture speech that he will extend the VAT rebate on foodstuffs until June and that he will maintain aid for public transport. These announcements have not been taken into account by Brussels in its assessment and would aggravate the deficit problems if there are no compensatory measures.

As regards the other member states, Brussels has ruled that the budgets of Cyprus, Estonia, Greece, Ireland, Latvia and Slovenia are fully in line with EU recommendations. In the case of Italy, Latvia, the Netherlands, Germany, Malta, Portugal, Luxembourg and Slovakia, the EU executive’s assessment has detected some deviations.

The worst performers are Finland, France, Croatia and Belgium, whose public accounts are at risk of not complying with the EU’s recommendations. The EU calls on these countries to make further adjustments.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.