Spain should have been punished for lax budget, EU advisors say

Spain was shown undue largesse over its high budget deficit – and should have been deemed to have an excessive deficit alongside the likes of France, Italy and Romania earlier this year, a panel of EU fiscal advisors has said.  

The EU is this year returning to fiscal discipline after putting its stability and growth pact, designed to avoid Greece-style eurozone crises, on hold for the pandemic – but the Brussels executive is already cutting corners, the European Fiscal Board said Wednesday (2 October).

The decision not to take legal action against Spain “is not strictly in accordance with the rules as they exist”, the Board’s Chair Niels Thygesen told reporters today.  

The excessive deficit procedure, the EU’s means of correcting budget imbalances, “is based on observed facts”, and the 2023 deficit of Spain – which soared 0.6 percentage points above the threshold set out in the EU treaty – “was clear and well-documented”, Thygesen said.

EU rules allow a carve-out for low-debt nations facing a small or temporary breach – but the Commission “explicitly stated” that this condition wasn’t met by Spain, said a report by the Board, a panel of four people established under EU law to advise on the fiscal framework.

With Madrid expected to cut its deficit anyway, the Commission reasoned that a formal warning would serve no useful purpose – but “such an element of judgement adds a new element of discretion that does not feature in the relevant legal provisions”, said the Board’s report, suggesting inconsistencies between how countries were treated by Brussels. 

EU laws requiring countries to keep deficits under 3% and debt under 60% of GDP were put on hold during the 2020 pandemic and subsequent energy crisis – and their return was subject to a heated dispute among Member States.

In June, under revamped rules that allow for investment in strategic sectors such as defence, the Commission berated Belgium, France, Italy, Hungary, Malta, Poland, Romania and Slovakia for their failure to balance the books, a decision endorsed a month later by the EU’s Council, which represents member states.

Those countries are now negotiating with Brussels how they’ll return to fiscal balance – though there are some doubts about how credible some of those promises might be. 

France is facing particular instability, after June elections saw a shock rise for the far-right, and meant no party enjoys a majority; its deficit was already amongst the highest in the eurozone. 

On Monday, new Prime Minister Michel Barnier said he’d cut the deficit to reach 3% by 2029, to be met by a mixture of spending cuts and new taxes on large companies and the wealthy.

A Commission spokesperson told Euronews that, in June, it had assessed Spain’s excessive deficit to be “temporary”.

“The Commission will continue monitoring budgetary developments in Spain and re-assess the situation on the basis of the data that we observe in the autumn and on our autumn forecast”, the spokesperson added.