On Tuesday, the European Commission warned the new government that Spain will face a “very difficult” tax situation in 2024 with deficits above the 3% limit and debt “pretty high.” Moreover, he gave his visible good for a budget projectbut called on the Sanchez government submit an updated plan “as soon as possible”since the current one was sent in October as an acting executive, as in the case of Slovakia, Luxembourg and the Netherlands.

The Community Executive, which published the report on the European Semester, considers that Spain’s project, based on the extension of the previous budget, is in line with July 2023 Council Recommendationswho called cancel more general support measures to solve the energy crisis while protecting the most vulnerable, and called on member states to use the resulting savings to reduce deficits.

However, community sources warn that The fiscal situation in Spain next year will be “very difficult” as economic forecasts point to deficit above 3% limit GDP in both 2024 (3.9%) and 2025, together with public debt “quite high” which is expected to continue to exceed 100% of GDP in 2024, and also exceed the treaty threshold of 60% .

The same sources stressed the need for Spain to develop a budget strategy. “credible” in the medium term and noted that Brussels will ask for “details” the extension of the VAT reduction on food products, announced by Prime Minister Pedro Sánchez during his speech at the investment session.

Faced with geopolitical tensions that “cast a shadow of uncertainty on the economic outlook” A year from now, when the provision that froze fiscal rules due to the pandemic will be deactivated, the European Commissioner for the Economy, Paolo Gentiloninoted that it is important for governments to remain “flexible.”

In the same spirit, the Vice-President of the Commission for Economic Affairs, Valdis Dombrovskis, recommended that EU Member States: apply fiscal policy “more cautious”which “will help reduce inflation, improve debt sustainability and replenish reserves after massive government spending during the pandemic and energy crisis.”

The Commission considers this to be “consistent” with the need to rebuild fiscal buffers over time and thereby improving the sustainability of public debt in some Member States, although it is “vital” to support investment and disbursement of funds from recovery and resilience plans.

Economic imbalances

In 2024 they will prepare detailed reviews of Spain and the other ten Member States that experienced imbalances or excessive imbalances in 2023. The Alert Mechanism report provides an overview of the evolution of the key data underlying these imbalances.

V comprehensive analysis of 2024which will be published in the first half of next year, an economic assessment will be carried out to determine whether these imbalances are getting worse, are being corrected or have been corrected, with a view to update existing ratings and assess possible remaining policy needs.

Next steps

The Commission will present its proposed recommendations for the eurozone EU economic and finance ministers and the Eurogroup at their next meeting in December. The proposal is expected to be discussed by the Eurogroup in January, approved by the Council in March 2024 and then formally adopted by Ecofin.

EU Member States will have to take action based on the recommendation, both individually and collectively within the Eurogroup, to implement the euro area recommendation in the period 2023-2024.