Crisis in Spain's fiscal policy: urgency for a sustainable strategy

The current situation of budgetary policy in Spain highlights an alarming lack of direction that could jeopardize the country's future well-being. Amid a debate focused on fundamental aspects of governance, a crucial discussion has been notably absent: the need to establish an effective fiscal strategy that sustainably enhances the well-being of citizens. The absence of a clear course is reflected in the extension of budgets and the lack of concrete proposals for the upcoming fiscal year, generating a sense of provisionality that concerns both experts and citizens. One of the most troubling elements is the ambiguity that characterizes the current landscape. So far, the basic pillars that should guide fiscal policy, such as the spending cap and the medium-term fiscal path, have not been approved. The delay in these objectives within parliamentary corridors not only reflects a lack of consensus but also plunges the country into instability that could hinder growth and investment. This situation is not exclusive to Spain; several European countries face similar challenges. However, the peculiarity lies in the fact that Spain is currently in a favorable conjunctural moment, being the only one of the major European economies growing above its potential. This growth, although positive, has not translated into a significant improvement in public finances. Despite the deficit remaining slightly below last year’s levels, the primary deficit continues to be a worrying indicator. This means that the country is not achieving a sustainable balance in its finances, which could have long-term consequences. Between January and June of this year, public administrations accumulated an increase in liabilities exceeding 51 billion euros, a figure that underscores the urgency of rethinking fiscal policy. Fiscal policy thus becomes an essential tool to stimulate the economy, especially regarding productive investment. The expectation of an adjustment in interest rates by the European Central Bank (ECB) could provide some relief, albeit limited. A decline, even if modest, could clear investment expectations and, in turn, enhance the multiplier effect of European funds. However, the coincidence of budgetary and monetary stimuli could pose risks, such as the diversion of resources toward less productive activities and increased inflationary pressure in the services sector. The consolidation of the deficit also requires a budgetary strategy aligned with the economic cycle. Although Spain has managed to issue debt under favorable conditions, the situation could change drastically with the complete cessation of debt purchases by the ECB. Starting next year, the central bank will begin to offload the bonds acquired during the pandemic, which could raise the costs of new debt issuances, further complicating deficit financing. In light of this scenario, it is clear that a rethinking of fiscal policy is unavoidable. Budget extensions have become recurrent, but the impact of another delay would be more pronounced in the current context. The budgets designed in 2022 are anchored in a health and geopolitical context that no longer reflects reality. Therefore, the ability to prolong the expansionary cycle and, with it, the room for maneuver to implement governance reforms largely depends on formulating a credible and effective fiscal strategy. The lack of consensus around fundamental fiscal guidelines only exacerbates the dilemmas facing the country. It is imperative that policymakers work together to establish a clear framework that guides the economy toward a more sustainable and equitable future. The absence of an agreement could lead to greater uncertainty, negatively affecting both investment and long-term growth. The situation is complex and requires a swift and decisive response. Fiscal policy must not only be a patch to cover deficits but should also be aimed at creating an environment conducive to growth and social well-being. Ultimately, a comprehensive approach is urgently needed that not only considers short-term measures but also charts a clear path toward sustainability and future prosperity. The responsibility of political leaders is monumental, and their ability to act with vision and cohesion will determine the course of the Spanish economy in the coming years.