Europe turns off the tap again

Four years later, the fiscal and political change brought about by the pandemic is coming to an end. Europe has decreed that it is time to reverse the purely Keynesian policies of heavy public spending and, therefore, the consequent indebtedness of states. The measures have made it possible to dampen the economic and social effects of the crisis, which would otherwise have been much worse. The recession has been avoided. Instead of the cuts of a decade earlier, this time they opted for a relaxation of the deficit rules, which will now, however, return to the limit of 3% of GDP by 2026. The debt has become large and you need to start paying it back before it snowballs out of control: in this case, the maximum is set at 60%. Spanish reached 118.4% of GDP in 2021 and is expected to remain above 100% until 2025.

Both the Commissioner for Economy, Paolo Gentiloni, and the Economic Vice-President of the European Commission, Valdis Dombrovskis, understand that, despite the war and the energy crisis it has caused, it has been possible to neutralize the danger of a serious recession, and that the tax free bar no longer has reason to exist. Time to start doing homework. Sooner or later this moment had to come. Everyone knew it. The idea is that it should not be a blow that causes a third wave of crisis; then the exception of recent years would have been of no use. This is why a transitional period has been designed. Depending on how the economy evolves in 2023, the accelerator of fiscal rigor will be stepped on or some margin will still be left before activating penalties for those who do not comply. It will also be done on a case-by-case basis, with specific approaches depending on the accounts of each government, which will have to present their respective plans in April. However, the message is clear: Europe is returning to fiscal rigor. And Spain is one of the countries that does not have it easy to comply. Catalonia, therefore, will also suffer and see its deficit margin reduced. Brussels sends out a warning for bad navigators right from the start: it asks Madrid to start all at once with moderation in public spending, not to leave it for the last moment, as it usually does. The State closed 2021 with a deficit of 6.8% of GDP and the Spanish government estimates that in 2022 it will fall to 5%.

Direct support to families or generic reductions in VAT on electricity or gas are likely to end ”

The difficulty, here and everywhere, lies in the contradiction between returning to the adjustment of the deficit to reduce the debt and seeing how, at the same time, the financial cost is becoming more expensive due to the increase in interest rates. And all of this will have to be compatible with the need to maintain public investments to guarantee the energy transition and the competitiveness of companies. If we also add the increase in military spending due to the conflict in Ukraine, and a situation of social precariousness that remains -especially in the Catalan and Spanish cases-, we can already see that the challenge is not at all simple. Direct support to families or generic reductions in VAT on electricity or gas are likely to end. As it also seems clear that the serious tibantors will return when it comes to defining public budgets, which will no longer be able to be expansive as in recent years. Europe turns off the tap.

Content produced by

• Front page

• Last hour

• discover

• sections

• 
  

  Profile