The process for the money from European Next Generation funds to reach the real economy and companies is long, bureaucratic and very complicated, but the mechanism that explains how it works is very simple. Spain, like the other 26 EU partners, presented in 2021 a National Recovery Plan with 415 milestones and reforms to meet, and agreed on an indicative calendar with the European Commission. For every certain number of investments, milestones and reforms achieved, you are entitled to a disbursement. When the Government believes that everything on the list is done, it submits an application, the European Commission verifies it and after another couple of procedures in Brussels, if everything is in order, the money is paid. Using this formula, Spain has already achieved just over 37,000 million euros in three disbursements, in addition to the initial one, known as pre-financing.
Despite the fact that the system has been in place for more than a year and a half, there was an element that remained to be defined: what exactly to do with the countries that, having submitted a disbursement request, have not completed all the required milestones or reforms. Most do, but not all. From day one it was very clear that there was the possibility of partial disbursements. That should be exceptional, but it was an option in very particular cases, for which a little more time or Parliamentary consensus was needed, for example. This Tuesday the European Commission took the final step by publishing the methodology on how to act in this case, how to penalize these partial disbursements and how to weigh the reforms and investments contemplated, because it was always very clear that they cannot all be worth the same.
Thus, for example, the reforms will have a much more relevant weight than the investments. And the final milestones more than the intermediate milestones, even if they are part of the same process. In cases of partial compliance, the amount of each disbursement would be calculated based on the number of objectives not completed. The total transfers planned for a country are taken (Spain was awarded 69,500 million, although it has been revised upwards due to the greater impact of the recession to 77,000 million) among the total milestones and objectives of the plan (415 in our case), which would give around 167 million euros each.
But since “not all measures contribute equally to achieving the objectives of a national recovery plan”, Brussels has established weighting factors. Thus, for example, all the objectives “related to the entry into force of a reform or the final step for the implementation of a non-legislative reform” have a multiplier coefficient of 5. But in addition, there may be upward adjustments of the values ??if the Commission considers that the implementation of the reform “is of particular importance in justifying qualification to address all or a significant subset of the challenges identified in the country-specific recommendations.” Likewise, a coefficient of 2 would be applied for milestones and objectives of large investments (representing more than 10% of the transfer, with a limited number of milestones and objectives equal to or less than 5. Or a coefficient of 0.5 for milestones and smaller investments.
This means that a reform as important as that of pensions, key for the EU and which is included in the Recovery Plan with a view to the next disbursement of 10,000 million euros, the fourth and which contemplates 58 commitments in total, the factor that would be applied is 5 for each reform, even with upward adjustments.
In this fourth phase of the plan, at least four key elements are contemplated in terms of pensions: the computation of the years of contribution, which is being negotiated with the social agents. Changes in the maximum contribution base, which is fought every day with the Commission. The intergenerational equity mechanism, and whether to extend it from 2032 to 2050 at least. And, in addition, the sustainability of the entire system, which Brussels will evaluate when all the legislation is already approved by Parliament. So there are many hundreds or several billion euros at stake, potentially.
The scenario, however, is purely hypothetical. This methodology is only applied if a country submits a request for a partial disbursement, and right now Spain has little incentive, and little track record, to suggest that this is the case. It is true that these elements of the pension reform are very complicated and very divisive, both among the social agents and within the Government, but also with the partners that it would need for its approval in the Cortes. But Spain has little incentive to apply before the full reform is complete, even if it means a delay. And the cases in which a country can submit a request expecting full payment and receive a negative surprise are rare, because the entire process is done hand in hand with the institutions, with daily exchanges and more on such important issues. If Spain presents the petition, it will do so knowing perfectly well whether it is sufficient or not.
The issue of pensions should have already been resolved so that a disbursement can be achieved before this summer, as marked in the agreed indicative calendar. But the third payment also had delays and nothing happened. The biggest problem is image, stigma, and credibility. Spain assumes the rotating presidency of the Council of the EU on July 1 and there can be no worse way to start than receiving a partial payment for being unable to push through a key reform, for Spain and for an aging continent.
But above all for a government like the Spanish one, which boasts from day one of leading the process. It is the only country that has received provisional approval for the third disbursement (some have not even received the first), which is proud to be at the forefront and setting the standards. And for a vice president like Nadia Calviño, who dedicates an enormous part of her time to this matter and to the relationship with those who were her colleagues in Brussels and in many cases are her personal friends.
According to this logic, Spain may be interested in delaying the request for funds for as long as necessary if the pension reform runs aground, despite the optimism that Minister José Luis Escrivá showed in Brussels this Monday, anticipating an agreement in matter of days To avoid the bad taste and the bad image of a partial disbursement, from the scrutiny of its partners in the Financial Economic Committee. And so as not to be the first to receive a non-positive assessment of the whole of a disbursement
But there are also calendar elements. The regulation defined this Tuesday stipulates that if a country receives a partial approval, it gets an extra term of six months to complete the milestone, the investment or the pending reform. After that semester, it is evaluated again and if all goes well, the pending payment will be unblocked, but if it is found again that the reform has not been completed, that money would be lost permanently. A small part in relative terms of the total, and more if the loans are added, but much more than symbolic. So it’s better to wait to have everything tied up, without penalties, surprises or additional dramas, as those at home are enough.
The feeling in Brussels, due to all of this, is that Spain will carry out the reform. It has done so until now in previous pension issues or with the labor reform, which will not be easy. For the Executive, and especially the socialist part, it is essential, politically and because our country has entrusted the economic recovery to Next Generation funds, having a much smaller fiscal muscle than other neighbors.
For Sánchez it is vital and so far he has managed to prevail over Yolanda Díaz and the UP ministers, despite their discrepancy. A few months before the general elections, a break is less scary than a deterioration in his image when he will be one of the main faces of the EU. The management of the funds has been a weapon and a battlefield with the opposition for two years, and the Executive has emerged victorious in almost all stages. Critics said the plan would not pass, and it did. That the controls were not enough, and Brussels endorsed it. And despite criticism, such as those that have surrounded the trip of a delegation from the European Parliament this week, from the European Commission and the Eurogroup everything is praise for our country, the Recovery Plan and the exchanges. If Sánchez does not want that to change, even partially, before going to the polls, he has every incentive to win approval. At any price, literally.
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