Newsletter: Brexit: there is still reason for optimism that a deal can be done this week

Newsletter: Brexit: there is still reason for optimism that a deal can be done this week

Monday, 9 December 2020

Funcas Europe

Good morning Future is blue readers,

This week we are covering the fiscal situation of Spain. Santiago Lago Peñas,Professor of Applied Economics and Director of the Governance and Economics (University of Vigo), has recently published a report with worthy insights on the impact of the pandemic on Spain’s public finances and the way forward to reduce its public deficit.

We are also keeping a close eye on Brexit, a negotiation that never seems to sleep. We've reached out to Iain Begg, Professorial Research Fellow at LSE and Funcas Europe, to share with us the chances for a Brexit deal with the deadline for a trade agreement in place before the end of this year.

See also at the end what we are reading these days.

Spain will finish 2020 with one of the highest deficits

The public deficit could reach up to 11,5% of GDP in 2020. According to the International Monetary Fund (IMF, 2020), Spain’s deficit will rank fifth among the 35 developed economies analysed in its report.

This can be partly explained by the fact that the Spanish deficit is particularly sensitive to the cycle. So, given the depth of the economic crisis, the deficit tends to increase markedly. In addition, the study points to a large structural component.

Therefore, even in the event of a strong recovery as is planned for 2021 and 2022, Spain will still face a large imbalance. According to the study, this will require a medium-term policy to reform the regional financing system in tandem with an overhaul of the Spanish tax, among other measures.

Note that, in comparison to the central government, Spain’s regional governments have presented a surplus of 0.44% in the first eight months of the year. This gap reflects both the amount of tax revenue transferred and advanced by the central government to the regional governments.

Source:Santiago Lago Peñas

Access here Spain’s fiscal context: a regional perspective

Brexit: there is still reason for optimism, Iain Begg

Throughout the Brexit negotiations, deadlines have repeatedly been set and, just as often, missed. To borrow a phrase from analysts of financial crises, this time is different, because the transition period will end in three weeks’ time and even the speediest of ratification processes will need several days.

The grand-standing by the various leaders, the positioning to blame others, and the games of hard-cop/soft-cop all make for entertaining political theatre, but should be ignored. Both sides want a deal, both will be adversely affected if the outcome is ‘no-deal’ and both therefore have compelling reasons to achieve it.

It is clearly important that the big political beasts are now directly involved because it is they who have to decide how much to compromise, knowing that some interests will have to be let down and it is incumbent on them to make the tough choices.

We know that the fishing industry in Belgium, France or Spain will have to accept some loss of access, but also that their counterparts in Cornwall or the North-East of Scotland cannot have everything they have been promised. But if their political representatives hold out for mutually incompatible outcomes, both may end up with less than they have now.

Similarly, although trust is in short supply, both sides need to be more confident that the other will not be irresponsible in introducing unreasonable bumps in the level-playing-field of the single market.

The breakthrough on Northern Ireland, brokered by senior figures, is an encouraging sign and removes one source of friction. Accidents can happen, but there is still reason for optimism that a deal can be done this week. Or am I kidding myself?

What we are reading

Brexit: Adieu or Au revoir
Giles Merritt goes out on a limb and speculates on the chances of Britain seeking re-admission to the EU in the not too distant future.

Navigating accidental illegality
Next year many companies selling goods or services between the UK and EU will inadvertently break some rule or other. But the immediate consequences of their inevitable infractions remain uncertain.

4 ways to reskill the global workforce – and this is where it’s already happening
Four critical areas – universal digital learning, micro-credentials, skills-based credentials and hands-on learning – will require coordinated attention from governments, the private sector, donors, and civil society.

EU vs Big Tech: Brussels’ bid to weaken the digital gatekeepers
Good read to understand the latest EU legislative plans to regulate tech platforms

Have a nice week!

Raymond Torres
Funcas Europe Director


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