The Spanish silver lining: EU Next Generation

Written by Lucía Moreno-Arrones Loriente

The COVID19 crisis is undoubtedly affecting Europe, but some Member States such as Spain are suffering from its effects more than others. The OECD predicts that by 2021 the Spanish economy will fall around -14,5% (the Spanish Central Bank is more pessimistic: -15,1%). Both consumption and investment dropped by 21,1% and 22% respectively in the third trimester of 2020 (Instituto Nacional de Estadística, 2020). Needless to say, its unemployment rates are among the highest in the EU: 16,26% of its population is unemployed, as well as 4 out of 10 young people (< 25 years old) (Instituto Nacional de Estadística, 2020).

The European Commission launched, among other recovery proposals, the EU Next Generation (EUNG), a temporary program that aims to ensure an effective response to this outbreak. It comprises three pillars:

1.     Supporting Member States recovery
2.     Kick-starting the economy and helping private investment;
3.     Learning from the lessons of the crisis.

“The COVID-19 crisis presents Europe with a challenge of historic proportions. The EU and its Member States have had to adopt emergency measures to preserve the health of the citizens and prevent a collapse of the economy. (…) While utmost vigilance is still required on the sanitary situation, the emphasis is now shifting to mitigating the socio-economic damage. This requires an unprecedented effort and an innovative approach.” Conclusions adopted by the European Council, 17-21 July 2020. 

The EUNG has a financial firepower of €750 billion (European Council, 2020), and it is estimated that Spain will receive 75.000 million euros, which equals about 7% of its GDP: a crucial boost to a very battered economy. 43 million will come from the Recovery and Resilience Grants (RRG) (European Commission, 2020). This program offers financial support for investments and reforms that are linked to the EU priorities, such as the digital transition and the green agenda. The EU also stated that “support will be available to all Member States but concentrated on the most affected and where resilience needs are the greatest” (European Commission, 2020), therefore recognizing the Spanish situation and the need to uplift its economy.

But how will this all work? In order to receive the economic stimulus provided by the EU, Member States have to submit their national Recovery and Resilience Plans, which must be in line with the EU’s long-term strategies and respect the ongoing ones (as mentioned, digital transition and climate plans). Those plans and their respective investment programs will be evaluated by the Commission, which will issue the appropriate recommendations. By linking the investments to the European Semester’s framework, the Commission reinforces its role as a “watchdog” of countries’ economic policies. 

As for whether this is good or bad news, opinions differ. For Spain, the situation is not easy. Right now, its political landscape is mediocre to say the least, topped with a disappointing leadership and an opposition that weakens rather than strengthens the country. An April 2020 study published by the Spanish Sociological Research Center shows that 30% of surveyed citizens have “low trust” on the Spanish government’s policies to fight COVID-19, and 46,6% believe that the outcome would have been the same if the government had been presided by the opposition party. Furthermore, 31,9% answered that they place “low trust” in president Sánchez, and 42,9% answered the same about the opposition leader Casado (CIS, 2020). While the majority in Congress rests with the ruling coalition, the opposition can make it very difficult for these proposals to be approved due to partisan interests. The pandemic has accentuated the already tense and polarized Spanish political climate, and this may jeopardize the consensus necessary to successfully draw up decent proposals to send to the Commission.

The Spanish government will have to keep in mind the EU recommendations for the country (the ones made in the context of the EU’s annual economic policy coordination mechanism). These are: to address the pandemic, sustain the economy and support the ensuing recovery; to provide income replacement, social protection, and preserve jobs; to provide liquidity to the real economy, promote public and private investment, and to improve coordination between the different levels of government and strengthening the public procurement framework (Darvas, 2020). 

These European Semester recommendations, historically, have not been implemented successfully either. In the February 2020 Commission report, it is stated that for the period 2011-2019 Spain had only fully implemented 12% of them, and made “substantial progress” in another 24% of them (European Commission, 2020). This doesn’t differ much from other countries’ figures but it is nonetheless important as from now on European financing is going to be linked to the fulfillment of these reforms.

How is then Spain’s historical performance  regarding the execution of  European funds? Not great. As for 2019, Spain executed only 33% of the funds available for the period 2014-2020, about 8 points below the European average (41%) (Martín, 2020). This constitutes a crucial weakness in 2020, because for the new EU Multiannual Financial Framework (MFF), starting in January 2021, countries will have to absorb the remaining portions of the 2014-2020 MFF funds, the ‘standard’ seven-year 2020-2027 MFF funds and the funds available under NGEU (Darvas, 2020). This means that the amount of EU money to be absorbed from January 2021 will be much bigger than earlier amounts, which for countries like Spain will definitely constitute a great challenge.

Spain – and the whole European Union – has faced an unprecedented health and economic crisis this year, and it is now, with the EU Next Generation, that a silver lining is presented. A chance to gain up to 7% of its GDP via European funds, if they are requested as specified. Thus, the real question arises: Will Spain be able to improve the application of the European Semester recommendations and the execution of the EU funds? If the country is successful, not only will it access the EUNG funds but also it will take a leap forward in the Europeanization of its economic policy. And most importantly, it will help millions of citizens that one way or another have been deeply affected by the COVID-19 outbreak.

References

Centro Nacional de Investigaciones Sociológicas (2020). Barómetro Especial de Abril 2020, Estudio nº3279. Retrieved from http://www.cis.es/cis/export/sites/default/-Archivos/Marginales/3260_3279/3279/es3279mar.pdf 

European Commission (2020).

The pillars of the EU Next Generation, retrieved from https://ec.europa.eu/info/live-work-travel-eu/health/coronavirus-response/recovery-plan-europe/pillars-next-generation-eu_en

Questions and Answers on the MFF and Next Generation EU, retrieved from https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_935

Country Report Spain 2020, p.16

European Council (2020). Conclusions of the Special Meeting of the European Council (12, 18, 19, 20 and 21 July 20202).  p.3, retrieved from https://www.consilium.europa.eu/media/45109/210720-euco-final-conclusions-en.pdf 

Darvas, Zsolt (2020). Will European Union countries be able to absorb and spend well the bloc’s recovery funding? Bruegel. Retrieved from, https://www.bruegel.org/2020/09/will-european-union-countries-be-able-to-absorb-and-spend-well-the-blocs-recovery-funding/

Instituto Nacional de Estadística (2020).

PIB, Trimestre 3 2020. Retrieved from https://www.ine.es/dyngs/INEbase/es/operacion.htm?c=Estadistica_C&cid=1254736164439&menu=ultiDatos&idp=1254735576581

Encuesta de Población Activa, 2020. Retrieved from: https://www.ine.es/dyngs/INEbase/es/operacion.htm?c=Estadistica_C&cid=1254736176918&menu=ultiDatos&idp=1254735976595