Spain is increasing its net spending above what is permitted by fiscal rules, but within the margin that the safeguard clause enabled for military spending would allow. What is the problem? That the Government, in its rhetorical reluctance to support European rearmament, has not decided to request a relaxation of fiscal rules in this regard.
This is why the European Commission urges the Government to adopt this flexibility in spending rules to comply with its fiscal commitments.
In its latest recommendations published this Wednesday, Brussels estimates net spending growth in Spain last year at 4.8%, deviating by 0.4% of GDP from the maximum recommended rate. The accumulated deviation in the last two years, however, is within the flexibility margin allowed by the escape clause in case Spain requested to adopt it.
The Commission's calculations are that in 2026 net spending will increase by 5.1% and deviate by 0.6% of GDP annually. Calculating the 2024-2026 period, the accumulated deviation would reach 0.7% of GDP. Spain would not comply with fiscal rules even by adopting the escape clause, which would leave the deviation at about four tenths of GDP.
In its report, the European Commission estimates Spain's total defense spending at 1% of GDP in 2025, one tenth of GDP more compared to the previous year. This spending will increase by two tenths more this year to 1.2% of GDP in 2026, raising military spending by three tenths of GDP in the last three years.
In its recommendations, the Commission asks Spain to strengthen defense spending and gradually adapt its budget to sustain a structurally higher level of military spending.
Extending the anti-crisis plan would cost 0.6% of GDP
The Community Executive also asks the Spanish Government to ensure that any measures adopted to mitigate the impact of rising energy prices are temporary and focused on the most vulnerable households and on energy-dependent companies.
In its report, Brussels points out that the tax cuts adopted by the Government are not focused and have an impact on public accounts of 0.3% of GDP. If these measures were extended and continued until the end of the year, the impact would be three tenths higher, up to 0.6% of GDP.
After revising upwards the economic forecasts for Spain for the coming years, the European Executive launched this Wednesday a battery of key recommendations to guide the Government's fiscal policies. Mainly, the European recipe focuses on fiscal sustainability through control of net spending, as well as the need to increase innovation and productivity.
Pending tasks
In terms of the execution of Union funds, the Commission gives Spain a slap on the wrist by warning that the implementation of the cohesion policy remains below the bloc's average both in project selection and payment. To reverse the situation, it would be necessary to "emphasize" the involvement of local and regional authorities and civil society.
Similarly, despite the reforms carried out in the judicial system, Brussels believes that the shortage of staff and unequal digitalization between regions would be generating a situation of judicial delays that end up harming the business climate.
The European Executive also points to the lack of innovation as one of the burdens on the national economy. Low private investment in innovation is defined as a limitation, which is complicated by a business structure of low-value micro-enterprises. Brussels has proposed to the government to increase public spending on R&D from 1.25% of GDP by 2030, thus ending dependence on European funds and promoting collaboration between academia and industry. "It is currently weak," say consulted sources.
Furthermore, there is the risk generated by the dependence of Spanish companies on bank loans. Brussels believes that venture capital and equity markets are underutilized, preventing young and technology companies from scaling their operations.
Another of the challenges facing the Spanish economy, like the rest of the European partners, is to end the bottlenecks in housing supply, especially in urban and tourist areas, largely caused, according to the Executive, by administrative slowness in permits and the lack of developable land.
In this regard, the stock of social housing in Spain is less than 2%, compared to the EU average of 7%. The Commission is pushing to create sustainable financing systems for this sector that do not depend exclusively on the national budget. Added to this is that in the country more than one in four children are at risk of poverty. What has been detected is that social transfers have a limited capacity to reduce this figure, and the Minimum Vital Income would have a scope below its potential due to administrative burdens and lack of knowledge among beneficiaries.