October 06, 2015
The European Commission's opinion on Spain's draft 2016 budget is due out today, but Pierre Moscovici told a post-Eurogroup press conference that the Spanish budget is "at risk of non-compliance" with the fiscal compact, reports the FT. "Risk of non-compliance" is a Commission warning implying that, in case the deviation persists the following year, it will be considered an aggravating circumstance increasing the chances of sanctions being imposed. For the time being the Commission will simply ask the current government to "strictly execute" the 2015 budget - a reference to Commission estimates that Spain will miss incur a 4.5% deficit this year and miss its 4.2% target. It also demands that the incoming government submits an amended budget.
Under the current draft budget the Commission expects the 2016 deficit to be 3.5%. In addition to exceeding both the agreed deficit target of 2.8% and the general limit of 3%, structural reforms - the condition for the fiscal compact to be interpreted flexibly - fall short of Commission recommendations. Spain had been asked to make structural reforms "equalling 1.2% of GDP" but the Commission's opinion will assess Spain's proposal at 0%. At the root of the disagreement on the deficit are differing growth projections for 2016, with Spain forecasting 3% and the Commission 2.6%.
Expansión writes that the Commission has been warning for two years about Spain's lack of structural reforms as the government stopped trying to reduce the deficit and instead trusted that economic growth would to the trick. The Spanish government is of the opinion that the Commission has been wrong before on its economic forecasts and will be wrong again in this case.
The political reactions have been peculiar to say the least. The PSOE criticises the government's electoral use of the budget. Podemos criticises the EU's encroachment on Spain's sovereignty, which makes them look like they are defending the PP's budget. In case a left government is elected in December, they will immediately find themselves in conflict with the Commission over additional austerity needed on top of a budget they will have opposed in the Spanish parliament.
The budget's rejection risks throwing Mariano Rajoy's strategy in disarray. Calculating that his reelection prospects improve with time given the positive growth and employment trends, Rajoy has delayed the elections as much as possible. Attempting to approve the 2016 budget before calling the elections was a convenient excuse, as the parliamentary term expires on November 20 leaving barely enough time to pass the budget, and this only by submitting the budget early to the Commission. All the other member states will submit their budgets closer to the October 15 deadline. Rajoy has been trying to present the early budget submission as proof that the PP is a "serious" party that does the "responsible" thing, a message that is now also damaged. Now Rajoy's government will have to bring to the parliament a motion to approve a budget everyone knows will have to be amended in January.
Though Rajoy said the election would definitely take place on December 20, it has not been called yet. The unusual timing of the election has been criticised for hurting retailers, as the Sunday before Christmas is a major shopping day. The reason is that the law provides full-time workers must be given 4 hours off on voting day. This will mostly affect large supermarkets, but also food markets, which usually stay closed on Sundays the rest of the year, writes Economía Digital.
We also have stories on the Greek budget debate; on Greek bank recapitalisation; on the latest sentiment indicators and what they might mean; on whether the Commission will classify the refugee crisis as an "exceptional circumstance"; on the FN's likely successes at French regional elections; on banks that are upset at ECB rules, and on an Italian proposal for a eurozone unemployment insurance.