Fiscal space in Spain after the pandemic and the new tax rules in Europe

The COVID-induced crisis has left a legacy of more public debt and higher public deficits in Spain. Moreover, the envisaged path of budget balances makes public accounts more exposed to the existing risk scenarios.

Key points

• Key points:
• During the pandemic crisis, ECB’s measures have been very effective in containing and reducing Spanish risk premium, and public and private sector financing costs.
• The path of adjustment toward 2025 is slow and relies on a favorable growth environment. If downside risks materialize, the sustainability of public debt may once again be called into question.
• The experience of recent decades in the EU shows that with the same fiscal rule, there is enormous heterogeneity in the results across countries in terms of deficits, public debt and the sustainability of public accounts.
• Of the proposed rules, the European Fiscal Council’s rule stands out for its simplicity, it is less sensitive to the measurement of the economic cycle, it maintains the target debt level of 60%, because it is not pro-cyclical and because fiscal consolidation is more gradual.

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