How To Bring Spain’s Economy Out Of Its Coma

Public debt will be a major burden for the growth of the Spanish economy in the coming years

Miguel Navascués | Spain’s investor presentation earlier this year attempts to shed light on the weight and scope, size and proportions, of “Spain’s Recovery Resilience and Transformation Plan”. Page 10 explains the following:

“Supported by the Next Generation EU, the Spanish RRT Plan envisages the deployment of €140 billion of public investment and the mobilisation of up to €500 billion of private investment. This is expected to raise Spain’s growth potential by more than 2%. Four general objectives (Ecological Transition, Digital Transformation, Gender Equality, Cohesion and Inclusion) and ten specific policy areas.”

1.- Urban and rural agenda: 16.0%.
2.- Ecosystems and infrastructure: 12.2%.
3.- Energy transition: 8.9%.
4.- Public administration of the 21st century: 5.0%.
5.- Modernisation and digitalisation: 17.1%.
6.- Science and innovation: 16.5%.
7.- Education and knowledge: 17.6%.
8.- Employment and social assistance: 5.7%.
9.- Culture industry: 1.1%.
10.- Strengthening of the tax system: –

It is not insignificant that the first 9 points already account for 100.1% of the budget. That would explain, by inexorable budgetary logic (even if the document is signed by the Treasury), that point 10 has been left with nothing. At least for the time being.

The Power Point prepared by the Treasury is not to be missed. Not in vain, the first “Highlight” explains that “Spain grew well above its peers from 2014 to 2019 amid significant deleveraging”… Which certainly should not be confused with praise for the work of Mariano Rajoy’s Government, although it might seem so.

The Plan presented by Pedro Sánchez’s Governmnet -of which the Treasury of the Kingdom of Spain makes echo – has undoubtedly more pomp and ceremony than the remembered and much criticised “Spanish Plan for the Stimulation of the Economy and Employment”. Namely, the Plan E of José Luis Rodríguez Zapatero’s Government ( 8. 8 billion dedicated to a sterile public investment –the figure doubled the annual investment of the Spanish municipalities– with a null multiplier coefficient while unpaid invoices piled up in the drawer). But being the current “Recovery and Resilience Plan” – also of Transformation, of course- there are analysts who miss finding space for those items required to keep afloat sectors such as tourism and hospitality, which face bankruptcy, with severe effects of unemployment and devastation.

In the face of digitalisation, green, resilience, etc., there are those who advocate other ways to try to pull the Spanish economy out of its coma. As Ignacio de la Torre, chief economist at Arcano, explains simply in an interview with the IEAF: “What we need to look for is a sector that can quickly generate 600,000 jobs, and the only sector that I believe can do that is the construction sector, which can generate those jobs and replace that workforce. That is why I have been asking for a year for a programme like the one the English have, “help to buy”. This allows those who want to buy their first home and can pay the mortgage -but cannot afford the first payment- to receive 95% of the value of the house from the bank -and not 80%- because the State guarantees 15% to the bank. That measure can help the sector return to its historical average and generate 600,000 jobs.”

To build a public housing stock to house those who are now forbidden to be evicted? Or to undertake a plan such as the one proposed by the chief economist of Arcano, supported at the time by the president of Santander?

The traction effect of the construction sector is proven, and is indisputable. However, according to Julián Núñez, president of the construction employers’ association, SEOPAN, the data and forecasts are not encouraging: “the preliminary data on public tendering and contracting of civil works by the whole of the Administrations, point to a reduction of 29% in 2020 (in tendering) and 43% (in contracting) comparing data up to November with respect to 2019. The most relevant reductions are concentrated in the General State Administration (-55% and -61% in tendering and contracting) and the only subsector with positive tendering data is residential building (+20.7% increase up to November).”

Despite the arrival of the European funds, SEOPAN does not expect the upturn in 2021 to exceed 6%. The explanation for those bleak forecasts “would come from the deficient execution of the European funds of the 2014-2020 multiannual programme, barely 34%” (19.374 billion executed out of the 56.367 planned for the six-year period that has just ended). And, on the other hand, “due to the regulated term for the authorisation by the European Commission of the Recovery Plan, and consequently, for the implementation of the Next Generation funds in 2021. Therefore, the priority is to anticipate the application of the REACT EU programme of the Autonomous Communities for the economic and employment recovery.”

For Nuñez, “in our country the concession model, which is basically the model by which public-private partnership procedures are developed, has disappeared from the procurement scenario since 2012. Its recovery is one of the main priorities in the European Next Generation programme. And there the important thing is, firstly, to define the collaboration model we want to create, to invest in what has to do with the preparation of projects, and to have conditions that make private action attractive to our sector.”

In this respect, he explains that it is good news that the Government has improved the profitability conditions or discount rate applied to concession projects in Spain. Previously, we had a discount rate of 2%, and now we would be close to 4%.” With this new hook, SEOPAN expects to be able to “project and award contracts before 2023 and to have them finished before 2026.”

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://http://www.miguelnavascues.com/