Newsletter: The Spanish economy and the second wave of the pandemic

Newsletter: The real issue is whether Spain can wait until the European funds become available?

Monday, 30 November 2020

Funcas Europe

Good morning Future is blue readers,

This week we are covering new insights on the health of the Spanish economy. A freshly published report by Funcas brings some new light on how Spain was doing before the pandemic in comparison to other EU Member States and what are the opportunities to relaunch the economy next year by taking advantage of EU funds.

We are also featuring a short post by Funcas analyst Miguel Carrión on the absorption capacity of EU funds and what this experience can tell us about the EU’s recovery plan.

See at the end, as usual, what we are reading these days.

The Spanish economy is slowing down 

A Funcas paper (available here in Spanish) alerts that the Covid-19 economic crisis is hitting an economy that some time ago stopped converging with the rest of the EU.

The GDP per capita in Spain has been at a standstill of 90% of the EU average since 2016, considerably below the 98% that was reached in 2003. Other indicators such as the % of the employed population, research investment or the % of early school leaving show worrying signals.

Ramon Xifré, author of this paper, explains how the Next Generation EU program represents a unique opportunity to revert those trends and relaunch convergence patterns of the Spanish economy with the rest of the EU.

For that to happen great political and social consensus are needed. The improvement of the management capacity of the public administration is also a must. Nevertheless, the conception of EU funds – targeting mid-term and long-term reforms – and the delay to get the final green light from the European Parliament and the Council will not meet expectations, considering the short-term economic stimulus that the Spanish economy will need in the first few months of 2021.

What the absorption of structural funds says about the EU recovery plan, Miguel Carrión

High hopes that the EU's recovery fund will act as a substantial macroeconomic stimulus have been dashed by the realisation that EU structural funds are absorbed slowly. Less than half of the EU's structural and investment funds budgeted for the 2014-2020 period had been spent by June this year. This does not mean that funds will go unspent but, given the way EU-funded projects work, the budget may take another three to five years to be used up. Similarly, it is to be expected that about half of the recovery fund will be spent between 2024 and 2026.

The European Commission and the Court of Auditors have been studying the problem of slow fund absorption for many years now. They have concluded that this is due to delays in the adoption of national legal frameworks and operational programmes, and in the designation of national authorities. Delays in the execution of one seven-year budget have knock-on effects on the next. And a change in the spending rules allowing money to be spent up to three years after it is committed, compared to two years previously, has reduced the urgency to execute the budget quickly. A Better Implementation Task Force and a dedicated unit at the Commission have been able to help countries absorb funds, but not in a sustainable manner as the same few countries keep ranking lowest in measures of fund absorption.

Ultimately, differences in fund absorption between member states are explained by different rates of selection of projects eligible for funding. Spain lags clearly on this measure. It is unclear why this is but, if Spain is to benefit from its disproportionate share of funding under the NextGenerationEU recovery plan, it needs to step up its ability to generate projects that the EU can fund.

Access here Miguel Carrión’s full paper

What we are reading

What the world can learn from the Covid-19 pandemic
Important lessons are already emerging to help us manage the impact of such diseases better in the future, explains Martin Wolf in this must-read that includes key graphics on the pandemic.

Covid-19: What you need to know about the coronavirus pandemic on 27 November
Great insights on how the pandemic is hitting the world economy and the potential impact of a vaccine for 2021, among other topics.

The scarring effect of Covid-19: youth unemployment in Europe
Even before the pandemic, youth unemployment in the EU was three times higher than among over-55s. The current pandemic threatens to undo the last decade of progress.

Biden time for the transatlantic relationship?
Good read on what to expect from the new American administration and to what extent we will see in the next years a relaunch of the transatlantic agenda.

Have a nice week!

Raymond Torres
Funcas Europe Director 


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