October 02, 2015


Another pro-cyclical budget - Spain edition

Before Italy and France, Spain had been the first country to draft an expansionary budget. Now that Spain has submitted its budget to the Commission early due to election calendar constraints, the Commission is almost ready to issue an opinion, which MNI writes may not be positive, and which may reflect concerns that failure to reign in the structural budget balance may prevent Spain from meeting its budget targets years down the line.

In the draft budget released in August, and submitted it to the Commission for review in mid-September, Spain proposed to lower taxes and increase spending which, on the back of strong growth, would result in a slight 0.5% reduction of the debt-to-GDP ratio to 98.2% at the end of next year. The deficit target for 2016 would be 2.8%, down from 4.2% in 2015. Spain argues it does not need to do anything on the structural budget balance as it would be meeting all the nominal targets. 

The Commission could issue an opinion in early October after which the Eurogroup would give its own. According to MNI's anonymous but "well-placed EU official", Spain might be asked to make some fiscal adjustments before the election so that markets could be reassured on Spain meeting its targets, plus additional changes after the new government is sworn in. A number of member states are said to be unhappy with Spain's early submission and at the political interference of the upcoming election.

Our other stories

We also have stories on the date of the Spanish elections; on why Portugal reacted to austerity differently than other countries; on Merkel's continued loss in popularity; on a slowdown of sales at VW in the US; on an economic argument against Schengen; on comparisons between German unification - which happened 25 years ago this weekend - and eurozone integration; and on what kangaroos have to do with Italian politics.

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Summer Break

There will be no newsbriefing on Monday, Aug 31, 2015, a UK bank holiday.

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