MADRID (Reuters) – After securing a generous chunk of European Union stimulus funds for the coronavirus crisis, Spain faces an unlikely problem: how to use all the money, government sources told Reuters .
“This is not a crisis of dough (money), it is a crisis of ideas,” said one of the sources, referring to concrete investment projects to help the economy to come out of a record recession.
In a country that has failed to approve an annual budget since 2016 due to prolonged political paralysis, the need to suddenly absorb additional cash is a challenge, the sources said.
Spain has been particularly affected by the pandemic. It has recorded more than 640,000 cases of COVID-19, the highest number in Western Europe, and the disease has killed more than 30,000.
The economy fell 18.5% in the second quarter, a contraction second only to Britain in Europe.
To help Spain recover, it will receive around 140 billion euros ($ 166 billion) in grants and loans on the EU’s € 750 billion recovery plan against the coronavirus.
This includes 43 billion euros in grants over the next two years alone, or around 8% of annual spending.
“Spending this money is not easy,” a second government source said. Four sources close to the management of the funds said there were concerns and some worry about how to put in place the mechanisms to support this amount of cash.
Another source with direct knowledge of fund management said the main projects to receive the funds had already been earmarked and Spain would certainly meet the deadlines and requirements imposed by Brussels.
SANCHEZ OFFICE SUPERVISING THE IMPLEMENTATION
The European Commission has recommended EU governments to spend stimulus money on green energy, transport and investments in digitization.
Prime Minister Pedro Sanchez, who fought fiercely at a European summit in July for the stimulus fund to be approved, tasked his office to oversee the implementation of the stimulus plan, with an advisory group made up of of business executives to be put in place, another source said.
Economy Minister Nadia Calvino is also closely involved as she finalizes a reform plan to be presented in Brussels by October 15, which is to define the main projects eligible for EU money .
“At the moment, the challenge is how the money that arrives will be fully used, and there will have to be projects with a lot of absorption (investment recovery)”, said Jose Moises Martin, director of the Red2Red board. which addresses the public authorities. .
In addition to the stimulus funds, Brussels approved a subsidized loan of 21 billion euros to Spain to finance employment support programs, which should ease the pressure on the Treasury, which has been borrowing for months from this effect.
A source close to the Budget Ministry said incomes had recently been better than expected and debt issuance in September had slowed compared to previous months.
But on Wednesday, the central bank lowered its growth forecast for 2021 to 4.1% -7.3%.
Its chief economist, Oscar Arce, said that at best, EU funds could boost medium-term GDP growth by two percentage points, but success would depend on choosing the right investment projects.
($ 1 = € 0.8447)
Report by Belén Carreño; Editing by Andrei Khalip and Timothy Heritage