By Daniel Rodríguez Asensio, a Spanish economist and strategy consultant, who’s the founder and President of think tank Acción Liberal.
The game for European funds will be played in April. By April 30, the EU’s 27 Member States are expected to have ratified the EU recovery fund, which has been dubbed “Next Generation”, the new budget ceiling for the 2021-2027 EU long term budget or “multiannual financial framework” and the joint debt arrangement which the EU needs to be able to implement all of this.
Spain is the second biggest receiver in the EU of all these funds.
This, despite of the efforts by the Spanish Government to sell it to the nation as a success, is not good news. For that, there are many reasons, but here I will mention the most important:
- It is an aid mechanism, which fundamentally is a recognition of Spain’s inability to get out of this situation by itself
- Any creditor reduces one’s freedom to act, also when the creditors are Spain’s European partners or the EU
- There is conditionality attached to all of this
There is no analyst either in Spain or globally who considers it to be a realistic scenario for Spain to be deprived of European funds and not to witness its solvency and its capacity to obtain financing from the markets severely deteriorated. None.
Nevertheless, Spanish government leader Pedro Sánchez & co are determined to put these funds at risk.
How? By jeopardizing the independence of the judiciary, by avoiding the structural reforms that Spain needs, with wild campaigns to discredit partner countries, purely for partisan interests, for example with regards to French tourists in Madrid, and a lot more.
In this regard, it is worth remembering that the European Commission, in its latest estimates, did not include the effect the funds would have on Spanish growth, while it did so for other countries.
Previously, I have been warning that one of the greatest risks is that Spanish “Next Generation EU” spending plans may turn into a new “Plan E”, a failed endeavour by former Spanish PM Zapatero, whereby Spain ultimately relapsed in a deep financial crisis, in 2011 and 2012.
Unfortunately, the steps which the Spanish government is taking today, go into the same direction. A look at what the leading economies of Europe are doing instead, underlines the differences:
In Germany, the German Recovery and Resilience Plan was presented on 13 January. A 130 billion euro plan was revealed, with 23 billion euro coming from Europe. The 16 Länder or federal states have participated in its preparation and discussion through the so-called “Conference of Finance Ministers” and through deliberations in the Bundesrat. The Plan also benefited from the independent advice provided by the German Council of Economic Experts – the five wise men. Chancellor Angela Merkel herself made its success conditional on the good work of the Länder, stressing: “You cannot organize everything from Berlin”.
In addition to support to families and businesses, it also includes a specific section dedicated to local administrations as well as to initiatives related to mobility, energy transition, digitalization, education, research and health.
In France, for its part, “France Relance” was presented on 3 September. It is a plan endowed with more than 100 billion euro, of which 40 billion euro come from the EU. The plan was drawn up by a commission of experts including, among others, Nobel Prize winning economist Jean Tirole and former IMF chief economist Olivier Blanchard.
Decentralization and transparency are an essential part of “France Relance”. A monitoring committee chaired by the Prime Minister has been tasked to supervise it. Underpinning this, are regional committees that have been set up with a responsibility to identify priorities, inform local stakeholders and monitor project implementation. These regional committees include representatives from departments, municipalities and social partners.
The role of the regions was clearly defined in the French Finance Bill 2021 which was passed on 29 December. The bill provides:
“While responsibility for the programs is centralized under the authority of the Minister of Economy, Finance and Recovery, the actual implementation of the measures will ultimately be the responsibility of the departments prescribing the expenditure.”
A local approach towards the recovery plan is an important element in its implementation:
“The monitoring of its proper implementation and execution will be the responsibility of the regional recovery committee, co-chaired in each region by the regional prefect, the president of the council, the regional director and the regional director of public finance.”
This was the case to the extent that the regions have been directly negotiating their plans with the government. In fact, on 4 March, the French Minister of Territorial Cohesion and Relations with Local Authorities as well as the President of the Ile-de-France Regional Council – which includes Paris – have agreed a 13.8 billion euro recovery plan centered on three pillars: ecological transition, competitiveness and social cohesion.
The differences with respect to what little we know of the Spanish Government’s “Resilience Plan” are notable.
To mention just a few elements:
– The participation of Spain’s Autonomous Regions and City Councils to the Government’s “Resilience Plan” has not only been absent, but, until now, no information on the distribution and management of the funds has been provided to them. There is no “co-governance” of any kind, despite what PM Sánchez has promised.
– Also, there has been no involvement of independent experts, and there won’t be any. Both the design of the national Plan and the destiny and management of the funds are being carried out directly from the economic department of the cabinet office of the Spanish Prime Minister. This generates opacity and uncertainty. It also leaves the impression of clientelism and of politicization by the office of PM Sánchez.
– There are also problems of implementation. The delay in the presentation of the Plan and the absence of a clear strategy on how to manage the funds contribute to that. Spain’s Central Bank has estimated that in 2021, only 55% of the appropriations allocated by the government’s budget will be actually spent. That’s on top of the possible delay resulting from the decision of the German Constitutional Court to suspend ratification of the EU recovery fund.
The most recent development is that, in response, the Spanish government has decided to deploy funds coming from a scheme that is not even approved by the Spanish Parliament:
Spain has already started to "deploy" €27bn from its €140bn share from the EU "recovery fund", before this fund has even been ratified.
Spain's PM has stated this spending is "very closely linked to what the European Commission will expect from us" https://t.co/jJJohBhbkx
— Pieter Cleppe (@pietercleppe) April 14, 2021
– There are no objective allocation criteria either: the Spanish Government unilaterally decides on the allocation and destination of the funds, which makes it all arbitrary, as a result.
– No structural reforms are forthcoming in Spain. This despite the fact that to obtain the recovery funds, EU member states are required to follow the recommendations of the European Commission when it comes to economic policy, employment policy and public finances. Not only is the Spanish government declining to implement any structural reforms, it is threatening to repeal the progress made years ago, as for example reforms to the labour market or to pensions.
In short, Spain is entering a crucial period in its history with a profoundly deficient plan, rife of clientelism, while it is also on the verge of failing to comply with the demands of its partners, which are also its creditors. Spain is opting to be the problem, instead of the solution, for the European Union, which we now need more than ever before.
Originally published in Spanish by Libre Mercado
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