The future of Europe and Spain under Trump’s second administration
Fecha: enero 2025
SEFO, Spanish and International Economic & Financial Outlook, V. 14 N.º 1 (January 2025)
Index
The second administration of U.S. President Donald Trump began with a promise to use tariffs and other trade instruments to strengthen America’s economic performance and rebalance its relations with the outside world. The question is whether the European Union can use this challenge to meet its own economic objectives.
The Draghi report provides a transformative blueprint for Europe’s future, emphasizing strategic investments, industrial policy, and governance reforms to boost productivity and competitiveness. However, its ambitious proposals face significant challenges, including political fragmentation, limited fiscal capacity, and resistance to deeper integration, underscoring the need for prioritization of more viable reforms.
Mario Draghi’s report identifies integration as key to addressing Europe’s structural challenges, focusing on, first, the need to rollout a common economic policy and, second, the completion of the EU Single Market. For Spain, the latter measures would be the most effective in unlocking investment, though their success hinges on overcoming fragmentation risks amid rising protectionism.
Spanish companies enjoy lower bank borrowing costs than their Eurozone peers, with neither the size of the loan nor the company significantly impacting costs. While micro firms face slightly more obstacles in obtaining loans, the size penalty is far less significant in Spain, making access to finance a relatively minor concern across all business sizes.
As interest rates decline, Spanish banks face narrowing unit margins, prompting a strategic focus on managing retail deposit funding costs to preserve profitability. Banks with stronger control over deposit costs, particularly in smaller municipalities, are better positioned to stabilize savings flows because of their customers’ profile and the provision of tailored advice.
Digitalisation and artificial intelligence (AI) are redefining the relationship between customers and their banks by enhancing personalization, security, and efficiency; but not without risks. Striking a balance between innovation and trust, highlighting the role of transparency, ethical data management and human interaction, will be keys to its successful integration.
The construction sector in Spain has shown resilience but continues to grapple with low productivity and labour shortages. Addressing these challenges is critical for maintaining profitability and meeting housing demand.
Spanish banks’ insurance business, particularly in life insurance, have been a crucial source of earnings, directly contributing nearly 14% of their domestic profits in 2023. This contribution remains essential for banks’ profitability, with further growth expected from premium adjustments and rising non-life insurance activity.