New Brussels deficit projections for Spain fuel tensions ahead of election

Pierre Moscovici [European Parliament]

The European Commission has again increased its estimate of the Spanish budget deficit for 2015 and 2016. This is a blow for Prime Minister Mariano Rajoy, and exposes the political games of the EU executive. Our partner La Tribune reports.

The conflict between Madrid and Brussels rages on. A month ago, at the Eurogroup meeting on 5 October, the European Commissioner for Economic and Monetary Affairs, Pierre Moscovici, rejected the Spanish government’s budget proposal. This surprised and upset Spain.

Madrid’s forecast

At the heart of the problem was this: Madrid had forecast economic growth of 3.3% for 2015 and 2016, and had planned to run a public deficit of 4.2% of GDP this year, and 2.8% next year. With these figures, the Spanish government hoped to show that it could return its budget to within the limits of the Stability and Growth Pact from next year.

>> Read: Commission rebukes Moscovici’s hawkish stance on Spanish budget

This was to be an important factor in the campaigns for the up-coming general elections on 20 December, as it would in theory have allowed the next government greater room to manoeuvre, and thus the ability to make more expansive electoral promises.

Spanish deficit revised upwards

But Pierre Moscovici did not agree with Madrid’s growth predictions. In October, the Commission’s estimates put Spanish economic growth at 3.1% for 2015 and 2.8% for 2016, which led Brussels to revise the Spanish deficit objectives to 4.5% for 2015 and 3.5% for 2016.

>> Read: Commission calls on Rajoy to meet deficit targets before elections

On 5 November, during a presentation of the Commission’s macroeconomic forecast, Brussels again increased its prediction of the Spanish deficit to 4.7% of GDP for 2015 and 3.6% for 2016. The difference occurred after the inclusion of €1.5 billion of investments made by the Catalan region and the city of Zaragoza in 2013 in the calculations.

These investments were re-classified as public, rather than private spending by the Commission. As a result, Spain now has the second highest budget deficit in the EU, after Croatia, and the highest in the eurozone.

Bad news for Madrid

This is another thorn in the side for Spain’s prime minister, Mariano Rajoy, who will have to hand over his country’s budget to Brussels for adjustment.

Instead of gaining room for manoeuvre, the next Spanish government will have to tighten its belt to the tune of €8 billion just to place the budget back within the accepted range of the Stability and Growth Pact. Unless of course they request that the process be delayed. In any case, electoral promises on the economy look to be dead in the water.

The Spanish right appears to be in trouble: even if the governing People’s Party is leading in the polls, it is far from winning a parliamentary majority. The party’s share of the vote could fall by more than 16% compared to the 2011 election.

Political manipulation from Brussels?

Madrid stuck by its growth predictions and Spain’s conservative press questioned Moscovici’s motives, suggesting that he had deliberately tried to undermine the government to benefit the Spanish Socialist party in December’s elections. The Commissioner even had to justify his decision on his personal blog.

So in an ironic turn of events, the former French finance minister, judged too lax by the German right during his nomination for the Commission post last year, has now become too rigid for the Spanish right.

According to the journalist Jean Quatremer, Europe’s conservatives tried their hardest to undermine Moscovici’s decision on the subject in order to protect Rajoy ahead of the elections.

Martin Selmayr, Jean-Claude Juncker’s head of cabinet, supposedly even tried to replace the traditional press conference on the Commission’s economic forecast with a simple press release, so as to avoid “embarrassing” questions.

Commission’s independence under scrutiny

Whatever the truth behind the affair, it has raised serious doubts over the Commission’s political independence: either Moscovici tried to punish the Spanish right, or the European right tried to supress a truth that could have proved inconvenient for the Spanish government.

This is highly concerning, as the 2013 Six Pack Directive took power over national budgets away from the Council and gave it to the Commission. In theory, this power shift was supposed to prevent the “circumvention” of the rules for political ends. But this seems far from assured.

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