A top Spanish official has set out ambitious plans to use the country’s €140bn in EU coronavirus recovery funds to transform its economy, revitalise the small business sector and boost demand, despite domestic criticism of the government’s management of the programme.
Speaking to the Financial Times, Nadia Calviño, deputy prime minister for the economy, said the government had a historic responsibility to make good use of the funds and carry out accompanying reforms. This two-pronged approach would be vital in addressing Spain’s structural problems and repairing the economic damage wreaked by the pandemic, she said.
The funds are set to be delivered over the next six years, half as grants and half as loans, subject to an EU approval process, although Spain has already approved a budget that allows it to borrow €27bn in advance of receiving the money.
“We all have an enormous responsibility to ensure this is a success — the government, regional and local administrations, European institutions, the private sector and social partners,” Calviño said.
“All of us are aware the recovery plan is a unique opportunity to begin a process of transformation in Europe, to drive forward economic recovery and achieve medium-term growth that is sustainable in economic, environmental and social terms.”
Spain’s success or failure in using its share of the €750bn EU package could help determine how quickly the bloc can extricate itself from the coronavirus economic crisis — as well as its appetite for future pan-European economic integration.
“Our actions this year have a very clear priority, which is to stimulate economic growth [and] deploy this recovery plan as soon and as efficiently as possible”, Calviño said, emphasising a recent decree intended to reduce paperwork and remove bottlenecks in approving projects.
The deputy prime minister added that it was vital Spain’s small and medium-sized businesses benefited from funds to help companies digitalise and reduce carbon emissions. Big groups such as Telefónica, renewable energy company Iberdrola and car manufacturer Seat are already jostling for EU resources.
Calviño said some tenders for projects were likely to be issued as of the second quarter this year and that the €27bn of planned investments for 2021 would strengthen growth in the second half.
The spotlight on Spain has intensified with the accession to power of Mario Draghi, former ECB chief, in Italy, the other main recipient of the EU funds. While Brussels previously viewed Spain as ahead of Italy in terms of proposed reforms, Draghi’s agenda has changed the calculation.
Calviño welcomed the arrival of Draghi’s government, dismissing any suggestion that the credibility of Italy’s reform plans could lead to more demanding EU criteria for both countries.
“It’s very good for Spain, for Italy to be a country that helps provide stability for Europe and the eurozone,” she said. “As the countries with the biggest shares of the recovery fund, it is important that both implement coherent packages of reforms and investments so as to be motors of growth for the whole EU.”
Spain has been one of the economies worst hit by the coronavirus crisis, with gross domestic product declining by 11 per cent in 2020.
The government’s predictions of 9.8 per cent growth this year — including 2.6 per cent attributable to the recovery programme — are markedly more optimistic than most outside forecasts. The European Commission estimates 2021 Spanish growth of 5.6 per cent.
Madrid’s prediction for growth this year, compared with the European Commission’s 5.6% forecast
But Calviño argued that Spanish government forecasts had proved more accurate than others over the past two years. “Last year, the analysts expected a bigger GDP fall than we had and ended up making adjustments that came closer to the government’s forecasts,” she said.
She also cautioned the EU against prematurely shifting to tighter economic policies. “The initial [EU] response has been very good and we have to keep guaranteeing an adequate response as we exit from the crisis, so that the recovery can be strong and sustainable,” she said. “Monetary and fiscal policies should continue to act in the same direction.”
Critics of Pedro Sánchez’s Socialist-led government have voiced concern that the Spanish prime minister will wield enormous power over the EU funds and are demanding more transparency over allocation of resources. On Tuesday, Sánchez presided over the inaugural meeting of a government commission responsible for directing and co-ordinating Spain’s recovery plan.
Pablo Casado, leader of the opposition People’s party, said the recent decree gave the prime minister “carte blanche” over the funds, warning of the potential for “clientelism . . . that ends in corruption”.
Calviño said the system for allocating funds was in line with best practice, subject to “very demanding” scrutiny by the EU and would be “rigorous, in the sense of efficient management and control”.
Spain’s business sector has emphasised the importance of proposed reforms, which with the planned investment projects will make up the recovery plan the government hopes to present to the European Commission by the end of next month. Calviño said Brussels’ approval was likely to come by June.
The package includes over 170 reforms in areas such as pension and labour markets, renewable energy, modernisation of the justice system, digitisalisation of business and public administration and changes to education and training.
“The reforms are even more important than the funds for Spain but they have to be done properly,” said Iñigo Fernández de Mesa, vice-president of Spain’s CEOE employers’ federation. “We need public finances that are sustainable over the long term, which means pension reform and labour reform that doesn’t unpick the changes we have already made.”
“It would be too narrow to think that only these two reforms are important,” she added.