Spain loses €1.1 billion in EU Recovery Funds over diesel tax delays
The fifth instalment of the funds has been frozen until Spain delivers on its promises to Brussels
The European Commission has put the brakes on €1.1 billion of Spain's recovery money after the country failed to deliver on a number of key promises.
This frozen amount is part of Spain's fifth payment from the EU recovery fund, which was supposed to total €23.9 billion. Despite the setback, Spain will still receive around €22.9 billion because it met most of its other targets.
The problems revolve around two main issues that cost Spain about €500 million. First, the government hasn't followed through on promises to increase diesel taxes to match petrol tax levels yet, even though this has been in the pipeline for months.
Second, Spain hasn't finished digitalising its regional and local government entities as required.
But unfortunately for the Spanish coffers, that's not all. Another €626 million was deducted because Spain has been abusing temporary contracts in public administration. This money was actually paid out in an earlier instalment but is now being clawed back from the fifth payment.
The diesel tax issue has been a recurring headache for the Spanish government. Back in June, Minister for the Economy Carlos Cuerpo admitted the government was working on getting only a partial payment of this fifth instalment because of the failure to raise green taxes. He promised the government "will continue working in parallel" to meet the outstanding requirements.
This isn't the first time Spain has faced delays either. With the fourth payment, EU authorities froze €158 million out of €10 billion because Spain was late delivering on a digitalisation program for small businesses. The good news is that the Commission has now unblocked this money after Spain finally met that target.
In its plan submitted to Brussels, Spain committed to approving tax measures that would permanently increase revenue by about €4.5 billion, equal to 0.3% of the country's GDP. A key part of this plan was bringing diesel prices in line with petrol once and for all.
The diesel tax increase got stuck in parliament when an amendment failed to get enough support. Both the opposition PP party and the Basque Nationalist Party (PNV) voted against it.
However, the European Commission isn't giving up on Spain entirely and the government now has six months to sort out the remaining issues.
Despite the setbacks, President Pedro Sánchez tried his best to put a positive spin on the situation.
"Spain is complying and continues to lead Europe in the implementation of the plan. Our country is making progress in economic transformation with European funds," he wrote on social media.
And it would appear that the government has reason to celebrate, as this is the largest disbursement approved by the European Commission to any country since the Recovery and Resilience Facility was launched in 2021.
What has Spain actually achieved?
In all fairness, the country has made significant progress in areas that matter to everyday life. Brussels recognised that Spain has carried out "reforms and investments that will benefit citizens and businesses, focusing on key areas such as the ecological and digital transitions, biodiversity, sustainable mobility, research, development and innovation, social rights, education and vocational training, culture, sustainable tourism, water management and the efficiency of justice."
Spain has also pushed through reforms to boost renewable energy adoption and make clean energy investments more attractive.
"The reforms will reduce red tape and ensure that clean energy sources are better connected to the electricity grid and other sectors of the economy. Spain will also invest EU funds to make short-distance rail transport more attractive and accessible, with the aim of making it the preferred option for urban commuters and reducing car use in urban regions," the EU executive concluded.
Looking at the bigger picture, Spain's recovery plan is massive, covering 111 reforms and 142 investments across 595 milestones and targets. The total package is worth €163 billion, with €79.8 billion in grants and €83.2 billion in loans.
Out of 84 milestones and targets for the fifth payment, Spain successfully completed 82. With this new payment, Spain will have received nearly €55 billion in transfers, representing 70% of the total planned funding.
This puts Spain first in the EU for the volume of non-repayable funds received, ahead of neighbours Italy and France.
Since the plan started, Spain has met 264 milestones and targets in total.
Countries have until August 2026 to fulfil all their commitments and both the European Commission and the Bank of Spain have recently urged Spain to speed up implementation to avoid losing resources.
The results so far are impressive. Four years after the European Commission approved the recovery plan, more than €51.355 billion has reached the real economy, benefiting households and businesses. The scheme has helped more than 1.1 million beneficiaries, with four out of ten being small and medium enterprises and microenterprises.
Image: Pixabay
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