European Aid Accounts For 11.35% Of Spanish GDP In 2019

spain deconfinementSpain's spending last year was also lower than in 2009 financial crisis

Spain and Italy have been two of the leading countries in the European Recovery Fund race. Our country will receive 140 billion euros, of which 72.7 billion will be given in direct aid and the rest in loans. This is a figure equivalent to 11.3% of Spanish GDP in 2019. It is a balm for Spain’s public accounts that will be able to sustain the recovery with greater guarantees. It should also be borne in mind that, based on the GDP figures for the first quarter of 2020, these subsidies would represent 5.9%; but if we count the fall in activity in the second quarter and based on the data used in Europe, we would be talking about a percentage of around 7%. Italy, which became the global centre of the pandemic in March and April, will receive 209 bilion euros, consisting of 82 billion euros in grants and 127 billion in loans. The aid plan represents 11.8% of Italy’s GDP, although grants have a weight of 4.6%. Although in absolute terms the aid for Italy is somewhat more relevant, this is offset by Spain receiving higher subsidies. This would be explained by the fact that it would try to minimize the increase in our country’s debt, which would be around 120% of GDP.

The European agreement for the reconstruction fund will be decisive for presenting the 2021 General State Budget as soon as possible. It should be remembered that the current government continues to manage public accounts under the previous government’s budget. This is technically possible, but lacks political sense.

The Minister of Finance, María Jesús Montero, made it very clear yesterday during the press conference following the cabinet meeting: “It would not be understood if the agreement within the EU was not then reflected in a draft budget for the use of these resources.”

Spain will have already spent up to 54 billion euros in response to the pandemic. This has sent public spending spiralling to 54.8%, over half the size of the entire country’s GDP. This is according to data from the Report on Budget Execution, Public Debt and Spending Rule presented last week by the Independent Fiscal Responsibility Authority (Airef). Meanwhile, tax collection would have fallen by more than 35 billion euros, leaving public revenues at 40.3%. This in turn could boost the public deficit from 2.8% to 14.4% of GDP in 2020 and, consequently, public debt from 95.5% to 123%.

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