Spain | Calls for a new fiscal policy approach

Pro-cyclical policies and threats to the viability of the eurozone are two obstacles that are best avoided as we move forward. What’s left of the fiscal consolidation process is certainly significant and there should first be a consensus on how best achieve it.

Key points

• Key points:
• For now, the financial markets seem relatively unphased about the course that fiscal policy is taking. The risk premium paid on the 10-year Spanish bond with respect to same German tenor is only just above 100 basis points.
• The current political landscape has not led to any significant increase in economic turbulence. For example, there have been no episodes of volatility such as those observed in previous cycles, when there were indeed significant doubts over the measures being implemented.
• State budgets may be late over the line. This may be particularly risky if the public deficit does not fall below 4% of GDP by the end of the year, given that this factor underlies budget execution rates.
• The longer it takes for the budgets to be approved, the less time will be left to deliver on the commitments made and, therefore, the more intense and feverish the fiscal consolidation process will have to be.
• Uncertainty could increase over the coming months if future adjustments are based on tax increases that raise the cost of employment and discourage investment.

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