The escape clause recently requested by Spain from Brussels so that additional defense spending does not count for fiscal purposes may provide some relief in the short term, but it will not be enough to meet European commitments over the coming years. This is one of the conclusions put forward by the Independent Authority for Fiscal Responsibility (Airef) after analyzing the Annual Progress Report that the Government sent to the Commission a couple of weeks ago to report on the degree of compliance with the obligations set out in the Medium-Term Structural Fiscal Plan, the main planning document following the reform of European rules on debt and deficit. To avoid possible deviations, Airef estimates that Spain would have to adopt measures worth about 15 billion euros by 2028, mainly starting next year.
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The Fiscal Authority expects that net primary expenditure excluding revenue measures, which is the technical name of the key indicator of the new EU framework for controlling public finances, will increase by an average of 5% annually between 2025 and 2028, compared to the 3.4% the Government has committed to in the plan. The independent body projects growth rates exceeding the plan’s annual commitments by more than two percentage points in 2026 and 2027, and by more than one point in 2028. Consequently, the accumulated control account ―which allows seeing if countries meet their sustainability commitments― would exceed the limit starting this year and reach 2.1% of gross domestic product (GDP) in 2028.
The Government, to try to dilute the impact, requested the Commission to activate the national escape mechanism affecting defense disbursements, something most EU partners have been doing over the past months. If the extra increase in military spending is excluded from the equation, the control account is relaxed, reducing deviations. In 2026, as confirmed by the Fiscal Authority, the accumulated account would be exactly at the 0.6% of GDP limit. However, the body warns, in the following two years it would again exceed the caps, reaching 1.5% of GDP in 2028.
For all these reasons, even applying the escape clause and the flexibility foreseen in the European fiscal framework, Airef assures that additional measures equivalent to 0.6% of GDP in 2027 and 0.3% of GDP in 2028 will be necessary. In total, these amount to about 10 billion and 5 billion euros, respectively.
The body chaired by Inés Olóndriz recommends the Ministry of Finance to articulate a “realistic and credible” medium-term fiscal strategy that guarantees coordinated compliance with the national and European fiscal framework. It also reiterates the need to expand the content of the progress report with a complete medium-term fiscal scenario that allows adequately identifying risks to meeting the objectives.
The Fiscal Authority, beyond this warning, considers that the progress report sent to Brussels formally meets the established requirements by incorporating macroeconomic and budgetary information both from already closed fiscal years and updated forecasts for 2026. However, the body warns, the document “lacks ambition” as a medium-term guidance instrument.
Specifically, Airef reproaches the Government for not having updated the real variables of the macroeconomic scenario, which introduces “internal coherence tensions” in the scenario, especially in a context marked by uncertainty derived from the war in the Middle East. Furthermore, it adds, the report incorporates fiscal measures adopted in response to the energy crisis, but without reflecting their impact on the country’s macroeconomic variables.
The First Vice President of the Government, Carlos Cuerpo, explained a few days before sending the report to Brussels that the Executive would keep the macroeconomic framework unchanged, with a GDP growth projection of 2.2% in 2026. The reason, explained the Minister of Economy, is that the uncertainty surrounding the war in the Middle East is so great that the Executive still needs a few weeks to do the calculations. He spoke of a negative impact that could range between four and eight tenths, but asked for a little more time to present a closed scenario.
Major indicators
Airef, for its part, has indeed done this exercise and revises its growth forecast downward to 2.2%, one tenth less than previously projected. This figure coincides with that of the Executive, but with discrepancies. The main one is explained by nominal GDP growth, which the Government places at 5.3% in 2026, compared to the 4.8% forecast by the supervisory body. This difference translates into deficit and debt ratios, since a higher nominal GDP forecast helps the public finance picture look more favorable.
For 2027 and 2028, Airef revises the GDP projection upward due to higher migration flows, to 2% and 1.9%, respectively. Until 2030, growth would slow to 1.7%, although the body acknowledges that these forward-looking exercises carry several relevant downside risks, mainly due to armed conflicts.
Regarding the deficit, projections point to a rise in 2026 to 2.6% of GDP, mainly due to temporary measures adopted to address the energy crisis. In 2027 it would fall again to 2.2%, to rise from 2028 onwards due to expenses associated with population aging and defense obligations.
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