European Council: Spain is not projected to comply with the requirements of the transitional debt rule in 2019 and 2020

Spain & European Council. Recommendation for a Council Recommendation on the 2019 National Reform Programme of Spain and delivering a Council opinion on the 2019 Stability Programme of Spain.

In 2020, in view of Spain’s general government debt-to-GDP ratio, which is above the 60 %- of-GDP Treaty reference value, and projected positive output gap of 2,0 % of GDP, nominal net primary government expenditure should not grow in 2020, in line with the structural adjustment of 1,0 % of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact.

At the same time, there are signs that idle capacity in the economy is underestimated, with inflation projected to stay below 2 % in 2019 and 2020 and remaining slack in the labour market (high unemployment rate and a very high share of involuntary part-time work, temporary employees as well as in-work poverty).

In addition, the plausibility tool also indicates that there is a high degree of uncertainty surrounding the output gap estimates based on the common methodology.

On that basis, an annual structural adjustment of 0,65 % of GDP, corresponding to a maximum growth rate of net primary government expenditure of 0,9 %, appears appropriate.

According to the Commission 2019 spring forecast, under unchanged policies, there is a risk of a significant deviation from the required fiscal adjustment in 2020.

In addition, Spain is not projected to comply with the requirements of the transitional debt rule in 2019 and 2020.

Overall, the Council is of the opinion that the necessary measures should be taken as of 2019 to comply with the provisions of the Stability and Growth Pact. It would be important to use any windfall gains to further reduce the general government debt ratio.

Employment in Spain

Employment growth remains robust in Spain. Unemployment continues to fall but it remains well above the Union average, especially for young people and for the low-skilled people.

Gender gaps in employment and in the length of working careers remain wide. These represent untapped potential not least given the rapidly ageing population.

Spain has strengthened the support to the long-term unemployed, who still represented 6,4 % of the active population in 2018.

Recent initiatives seek to make young people employable through counselling and career guidance, but public employment services still handle a low share of job vacancies and further efforts are needed to improve their use in job search and placement.

In particular, in some regions, engagement with employers is weak and profiling tools to better match jobseekers with employers’ needs are still in an initial phase.

Efforts to reinforce labour inspectorates in order to fight against the abuse of temporary contracts are bearing some fruit and the share of open-ended contracts in net employment growth is increasing. However, employers continue to make an extensive use of short-term contracts.

Past evidence shows that the numerous incentives to support job creation are having limited effects in promoting quality employment. Spain launched a new evaluation with the view to simplifying the system, but results are not available yet.

Recruitment competitions to reduce the share of fixed-term employment in the public sector at all levels of government need to be speed up to reach the target of 8 % by the end of the 2020 recruitment competitions.

While the setting-up of tripartite round tables is a good step towards greater involvement by the social partners in policy design, there is room for deeper and more timely consultations.

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