(Bloomberg) -- The European Commission has warned Spain against submitting its draft budget to Brussels well past the legal deadline.
The EU executive expects all member states to present their preliminary plans by Oct. 15, or as soon as possible after that date, a person familiar with the matter said. As a result, the commission voiced its doubts at Madrid’s intentions of only doing so by late November, the person added.
Brussels also wants consistency between the member states’ medium-term fiscal plans and their annual budgets, said the person who spoke on the condition of anonymity as the deliberations are private. This could be at risk if Spain submits the former by Oct. 15 — as intended — but delays the latter beyond that date — as it has indicated it will.
The bloc’s economy commissioner, Paolo Gentiloni, met with Spanish Economy Minister Carlos Cuerpo on Monday in the margins of the bloc’s finance chiefs’ meeting in Luxembourg.
The Spanish government’s struggle to pass a budget back home is facing the pressure of meeting deadlines set by the European Union after Brussels reinstated fiscal rules.
Limited Flexibility
Cuerpo told reporters on Tuesday that the Commission is giving member states some “margin” in submitting draft plans for next year containing the economic measures instead of an extension of the national budget without policy change.
But Gentiloni already highlighted the day before that “there’s a limit to flexibility.”
“We can’t lose the connection between the draft budgets and the mid-term structural plans,” he said. “The two things need to be connected, and this means the flexibility on deadlines is there, but limited.”
Spanish budgets have become an extremely complicated political balancing act over the past decade after the traditional two party-system collapsed, leaving governments with a fragmented parliament. Both Prime Minister Pedro Sanchez and his conservative predecessor, Mariano Rajoy, have had to operate without budgets at times.
Under Spanish rules, when a government fails to pass a budget it can roll over the previous’ year spending plans. That’s currently the case as Sanchez failed to get one for 2024 and is using the spending plan from 2023 instead. He’s currently also struggling to garner enough support for next year’s financial proposal.
Budget Struggles
To pass a budget, the Spanish government must first get approval for a set of fiscal targets known as the “stability path.” Sanchez failed to do so in July — suffering a surprise defeat thanks to a last-minute decision by a group of Catalan separatists.
A second attempt to pass the same targets in late September was put on hold after the same group indicated it would vote against them again but was open to negotiating. To meet the EU deadline, the draft budget was due by the end of September, but the government is now holding talks with allies to try to reach an agreement by year’s end instead.
Passing a budget this year carries special importance for Madrid as EU fiscal target that were suspended during the Covid-19 pandemic are again in force, and this may require tightening expenses. The government also needs to approve a series of legal reforms, some linked to spending, to access EU recovery funds.
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