EUROPEAN COMMISSION Brussels, 16.6.2021 SWD(2021) 147 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Spain Accompanying the document Proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Spain {COM(2021) 322 final}



Table of contents 1. Executive summary 2. Recovery and resilience challenges: scene-setter 2.1. Macroeconomic outlook and developments since the 2020 country report 2.2. Challenges related to sustainable growth, cohesion, resilience and policies for the next generation 2.3. Challenges related to the green and digital transition 3. Objectives, structure and governance of the plan 24 3.1. Overall strategy of the plan 24 3.2. Implementation aspects of the plan 28 4. Summary of the assessment of the plan 34 4.1. Comprehensive and adequately balanced response to the economic and social situation 34 4.2. Link with country-specific recommendations and the European Semester 42 4.3. Growth potential, job creation, economic, institutional and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence 62 4.4. The principle of ‘do no significant harm’ 71 4.5. Green transition 74 4.6. Digital transition 80 4.7. Lasting impact of the plan 86 4.8. Milestones, targets, monitoring and implementation 88 4.9. Costing 89

4.10. Controls and audit 93 4.11. Coherence 96 5. References 100 6. Annex 101 6.1. Climate tracking and digital tagging table 101 1.Executive summary Despite several recent years of steady growth and job creation, a number of challenges persist in Spain. Spain enjoyed six years of strong economic growth accompanied by dynamic job creation between 2013 and 2019, but a number of structural weaknesses have not been fully overcome. The high unemployment rate, notably for young people, and labour market segmentation make it difficult for the new generations to find a job and make a decent living, and affect productivity and social cohesion. Economic efficiency, as measured by total factor productivity, remains subdued due to low innovation in many firms and regions, regulatory fragmentation, labour market segmentation, and skills gaps. Climate change poses important policy challenges for water and waste management, energy and resource efficiency, emissions and renewable energy. In this scenario, a still high external and internal debt, both private and public, remained a source of vulnerability. Fiscal sustainability is a challenge for the country, even more in light of its worrisome demographic situation. In this context, the COVID-19 pandemic hit Spain’s population and economy particularly hard, taking a significant toll on life and social and business activity. In doing so, it aggravated existing challenges. The severe outbreak of the COVID-19 pandemic in Spain and the containment measures taken in response to it resulted in an unprecedented decline in GDP in 2020 (-10,8%), which will not be recovered until the end of 2022. Despite government support shielding the labour market, the self-employed and firms throughout the crisis, unemployment and corporate liquidity have become major concerns. The unemployment rate increased to 15,5% in 2020 and it is forecast to slightly increase in 2021 before falling in 2022, to around 14,4%. Impaired firm profitability could also lead to the materialisation of corporate insolvencies with risks for productive capacity and employment. A further package of measures to support SMEs has been adopted in March 2021 to limit this risk. As a result of the severe contraction in GDP caused by the COVID-19 pandemic and the policy response required to tackle its consequences, the budgetary outlook has worsened. The general government deficit widened by more than 8 pps. to 11,0% of GDP in 2020. This, together with the impact from the SAREB reclassification [], has increased the general government gross debt-to-GDP ratio by almost 25 pps, from 95,5% of GDP in 2019 to 120% in 2020. As growth resumes and the deficit narrows, the debt ratio is expected to gradually decrease to around 116,9% of GDP by the end of 2022. Spain has requested EUR 69,5 billion of non-repayable support under the Recovery and Resilience Facility. Spain’s recovery and resilience plan makes a significant contribution to supporting the country’s economic rebound and contribute to a green, digital and inclusive future []. The plan is structured around the four cross-cutting objectives of the green and digital transitions, social and territorial cohesion and gender equality. It is designed to provide a response to Spain’s key structural challenges, in line with the priorities identified in the most recent recommendation on the economic policy of the euro area [] and a significant subset of the recent country-specific recommendations addressed to Spain by the Council. [] The plan pursues the general objective of the Facility to promote the Union’s economic, social and territorial cohesion and is balanced in its response to the six policy pillars referred to in Article 3 of the Regulation [].The balanced set of reforms and investments contained in the 30 components of the plan reflects the overall financial allocation as well as the challenges the country faces. The green and digital pillars contributions are significant in terms of reforms and investments put forward (pillars 1 and 2). The plan includes a substantial allocation for the green and digital transition (respectively, EUR 27,6 billion and EUR 19,6 billion). Most components in the plan are expected to contribute to smart, inclusive and sustainable growth, notably through support to enable a swift twin transition (pillar 3). A significant number of components contribute significantly to social and territorial cohesion, mostly through measures to address challenges in the labour market and enhance employability, investments on social inclusion and through improvements in the deployment of public services and infrastructure throughout the territory (pillar 4). Several of the components support significantly health, economic, social and institutional resilience, notably through measures seeking to improve the functioning of the public administration, the national health system and to preserve and enhance the natural capital of the country. Measures that seek to enhance the effectiveness of and fairness of tax revenue collection and spending are expected to contribute to economic and social resilience (pillar 5). In addition, a number of components are designed to support the policies for the next generation through investments in education, skills, the labour market, social inclusion and social housing (pillar 6). The plan is expected to contribute to address a significant subset of the recent country-specific recommendations addressed to Spain by the Council. [] The plan of Spain is expected to contribute substantially to address the country-specific recommendations on fostering public and private investment to help the recovery. In doing so, it is expected address the country-specific recommendations on investment in innovation and the digital and green transition of the country. The plan also includes measures to reduce the high share of temporary contracts and to reinforce active labour market policies that are expected to improve the functioning of the labour market. The plan is expected to help address the existing fragmentation of unemployment protection, which resulted in gaps. It is also expected to contribute to the provision of labour market relevant skills and qualifications that should accompany the green and digital transition of the country. Access to digital learning can be significantly boosted by the plan through investments in devices and skills, but also through the development of online courses. Educational outcomes may also improve as a result of investments at various stages of the education cycle. Measures in the plan also have the potential to contribute to address country-specific recommendations asking Spain to improve coverage and adequacy of minimum income schemes and family support. The plan is also expected to strengthen public procurement frameworks, and contribute to a better business environment. Finally, measures in the plan seeking a more effective public spending and tax system may contribute to fiscal sustainability. The plan also includes labour market and pension system reforms whose final design has been left open, as it is subject to the outcome of the process of social dialogue. With the aim of preserving employment, the plan includes the set-up of a flexibility and job stability mechanism that builds on the use made of short-time work schemes. The new mechanism is expected to promote access to training and voluntary mobility for workers in case of downturns. The plan also includes a modernisation of the collective bargaining system, which is to be carried on the basis of an evaluation identifying existing shortcomings in the system. In order to contribute to addressing country-specific recommendations in the labour market domain, the overall reform package of labour market reforms should strike the right balance between flexibility and security. The plan also includes a reform of the pension system with the aim of preserving its adequacy and long-term sustainability. For these labour market and pension system reforms, the final design of the measures is expected to reflect the outcome of the ongoing social dialogue process. These reforms are to be accompanied by an analysis of different options to ensure their medium to long term fiscal sustainability. The plan is expected to contribute to the green transition, the protection of the environment, including through a better management of water and waste, and to the enhancement of biodiversity. Measures in the plan support the decarbonisation of Spain and its energy objectives, as set out in its National Energy and Climate Plan (hereafter ‘NECP’) [ ], and are an important step towards achieving climate neutrality in 2050. The green transition is supported by measures to promote urban and long-distance sustainable mobility and to increase the energy efficiency of buildings, decarbonise industry and reduce energy dependency, as well as to deploy new technologies for renewable hydrogen and renewables. Measures are also expected to help mitigate the adverse effects of climate change by preserving coastal spaces, ecosystems and biodiversity, and promote the circular economy by improving the management of water and waste in the country. Together, the measures supporting climate change objectives in Spain’s plan account for 39,7% of the plan’s total allocation. All measures in the Spanish plan comply with the ‘do no significant harm’ principle, in line with the Technical Guidance published by the Commission. [] The digital transition is supported by investments on digital skills and in the digitalisation of the public administration, industry and business, as well as on the purchase of digital equipment for education. Substantial investments are designed to promote the digitalisation of the public administration and of the National Health Service, and simplify public interactions with businesses and citizens. The plan invests in the provision of basic digital skills to the general population, the unemployed and the employed with lower skills. The provision of advanced digital skills could have a significant impact on the employability of people further to the green and digital transition. Investments in digital connectivity (including 5G) and in the digitisation of the industry and small and medium-sized enterprises, including through the use of artificial intelligence, will allow Spanish firms to take better advantage of the opportunities offered by an increasingly digital economy. Investments are also made in the digitalisation of education, notably through the purchase of digital equipment and training for its use. The measures with a digital impact account for 28,2% of the plan’s total allocation. Once fully implemented, Spain’s plan has the potential to make a lasting impact by prompting structural changes in the public administration, institutions and policies. Relevant measures in this respect include changes that seek to enhance the effectiveness of the public administration, amongst others through its digitisation and through the strengthening of the public procurement framework, the efficiency of the justice system and the evaluation of public policies and spending. Further structural, lasting change may stem from other measures seeking to improve the business environment, notably through the reduction of market fragmentation and through better regulation. Measures in the plan may also lastingly enhance the productivity and competitiveness of Spain through a swifter adaptation of its industry, energy and transport system to the green and digital transition. This impact may be reinforced by measures adopted to enhance skills at various levels, to reduce segmentation in the labour market, modernise social protection and to address the gender gap, which in turn may help enhance social cohesion. Regions are responsible for the implementation of a substantial set of measures. Ensuring a broader ownership during the implementation of the plan will be important to enhance its effectiveness and lasting impact. Spain has established an adequate structure to implement the plan as well as to monitor and report on progress. The proposed milestones and targets are clear and seem realistic and the proposed indicators are relevant, acceptable and robust. The new Secretariat-General for European Funds of the Ministry of Finance will act as a coordinator for the plan and contact point with the European Commission. Line Ministries will be responsible for the implementation of the investments and reforms within the scope of their competence. The implementation of the plan will be subject to the control of the Comptroller General of the central government (Intervención General de la Administración del Estado – IGAE). The plan’s strategy, which builds on the 2019 Agenda for Change of the Government of Spain, is entirely coherent. The four cross-cutting objectives in the plan (digital and green transition, social cohesion and gender equality) and the ten policy areas that structure it are expected to ensure that measures are coherent across and within each of the 30 components of the plan. Reforms and investments are generally supportive of one another. Coherence is also embedded transversally in the plan through a set of reforms improving the functioning of the public administration. The effort required to frontload most of the reforms improving the business environment in the first years of the plan may contribute to a more effective delivery of the investments envisaged by the plan. Spain has provided individual cost estimates for all investments, as well as for those reforms for which associated costs have been specified in the plan. The justifications provided by Spain on the amount of the estimated total costs are in most cases reasonable, plausible, in line with the principle of cost efficiency, and commensurate to the expected national economic and social impact. Spain has provided sufficient information and evidence that the amount of the estimated total costs is not covered by existing or planned Union financing. In addition, adequate governance and control systems provide additional assurance to avoid double funding from the Facility and other Union programmes. Finally, the amount of estimated total costs of the recover and resilience plan is commensurate to the expected national economic and social impact. However, some gaps remain, in terms of the information and evidence provided on reasonability and plausibility of the estimated costs which preclude the highest rating of this assessment criterion.

Assessment and rating of the recovery and resilience plan of Spain under the criteria laid down in Article 19(3) of the Recovery and Resilience Facility Regulation in accordance with its Annex V. (1)

Balanced Response (2)

CSRs (3)

Growth, jobs… (4)

DNSH (5)

Green target (6)

Digital target (7)

Lasting impact (8)

M & T (9)

Costing (10)

Control Systems (11)

Coherence A A A A A A A A B A A 2.Recovery and resilience challenges: scene-setter 2.1.Macroeconomic outlook and developments since the 2020 country report The severe outbreak of the COVID-19 pandemic in Spain and the strict lockdown measures taken in response to it resulted in an unprecedented decline in GDP in 2020 (- 10,8%). The high number of infections in the first two months of 2021 forced Spain to tighten restrictions, which led output to drop further in the first quarter of the year (-0,5% of GDP, q- o -q). With the lifting of some restrictions in March, and the acceleration in the pace of vaccination, economic activity is set to begin growing over the second quarter and to continue more vigorously in the second half of the year. As was the case with the downturn in 2020, the recovery is also expected to remain uneven across sectors. Manufacturing production has started to pick up, while sectors with high social-interaction, such as leisure and tourism-related activities, are set to recover at a slower pace. According to the Commission 2021 spring forecast, real GDP is projected to grow by 5,9% in 2021 and by 6,8% in 2022. As a result, Spain’s GDP is expected to return to its pre-pandemic level by the end of 2022. With the prospect of a relaxation of restrictions in the second half of 2021, part of the accumulated savings prompted by the pandemic is expected to be unwound, spurring private consumption, but also investment. The higher absorption of Recovery and Resilience Facility (‘RRF’) funds envisaged in 2022, with potential crowding-in effects on private investment and a carry-over effect from 2021, are forecast to provide a noticeable boost to economic growth in 2022. The contribution of external demand to GDP growth is set to turn positive in 2022, when tourism-related activities are likely to approach their 2019 level. Inflation was slightly negative in 2020 due to a fall in energy prices. Inflation is expected to rebound in 2021 to 1,4%, as a more sustained outlook for demand spurs a gradual rise in the prices of consumer services. Upward pressures are also likely to come from prices of electricity and of fuels such as diesel and petrol. Short-time work schemes helped mitigating the impact on the labour market by preserving jobs and income of workers in the most affected sectors. Existing short-time work schemes (‘ERTEs’) were made more generous at the outset of the crisis to mitigate job losses and they are to remain in place until the end of September 2021. In addition, several measures were taken to protect the self-employed by means of benefits for suspension of activity. Despite these measures, the fall in employment increased the unemployment rate to 15,5% in 2020 from 14,1% in 2019. Unemployment is forecast to slightly increase again in 2021 (15,7%) before falling in 2022, when job creation is expected to reduce it to around 14,4%. In this context, further increases to the minimum wage seem to be envisaged [ ]. Corporate liquidity has been enhanced by a programme of public guarantees for new bank loans, tax deferrals, and payment moratoria, among other measures. Nevertheless, impaired profitability could lead to the materialisation of corporate insolvencies, mainly concentrated in those sectors most affected by activity restrictions, when policy support measures are wound down. This could lead to an increase in unemployment and reduced productive capacity. To limit insolvency risks in the short term, the authorities adopted in March 2021 a package of measures to support SMEs. A EUR 3 billion restructuring fund will allow to extend the maturity or convert to equity those loans backed by public guarantees. A recapitalisation fund worth EUR 1 billion will support the recapitalisation of SMEs, under certain conditions. This fund complements another recapitalisation fund worth EUR 10 billion for large companies that was set up in July 2020. Measures for SMEs also include a support fund (EUR 7 billion) to cover fixed costs of companies having suffered a fall in revenues of at least 30% in 2020 compared to 2019. The increase in unemployment and the fall in incomes due to the crisis are likely to result in higher poverty and long-term unemployment levels. Persons that were already struggling to find employment before the pandemic, like the low-skilled, young, but also non-EU born, are expected to see a further deterioration in their position on the job market. The low-skilled and non-EU migrants also face the largest risk of social exclusion and poverty. They are likely to benefit later from the recovery as many are employed in the sectors that have been hardest hit in the crisis, such as tourism. At 25,3% (2019), the share of people at risk of poverty or social exclusion is amongst the highest in the EU, and the crisis is expected to further increase this risk for vulnerable groups. As a result of the COVID-19 crisis and the policy response to it, the general government deficit widened by more than 8 pps. to 11,0% of GDP in 2020. A few one-off events, in particular the reclassification into the general government sector of SAREB, also took place, adding around 1 pp. to the deficit ratio and 3 pps. to the debt ratio in 2020. In 2021, the deficit is projected to narrow to around 7,6% of GDP, as a subsiding pandemic and the impact of a gradual implementation of the Recovery and Resilient Plan (‘RRP’ or ‘the plan’) of Spain leads to a rebound in economic activity, while the net impact of temporary emergency measures to address the economic consequences of the pandemic are set to weigh less on public finances. Thanks to a stronger impact on economic growth from the RRP in 2022, the deficit is forecast to narrow to 5,2% of GDP in 2022. Public guarantees provide crucial support, but also constitute a risk to the fiscal outlook. Due to the large government deficit, the severe contraction in GDP and the impact from the SAREB reclassification, the general government gross debt-to-GDP ratio rose by almost 25 pps. from 95,5% of GDP in 2019 to 120% in 2020. As growth resumes and the deficit narrows, the debt ratio is expected to gradually come down to around 116,9% of GDP by the end of 2022. Spain’s public debt and deficit were high before the COVID-crisis. Spain’s debt-to-GDP reached its previous peak in 2014 at 100,7% of GDP and declined gradually to 95,5% of GDP in 2019. Over the same period, the deficit was smaller than 3% of GDP only in 2018-2019. Although the debt ratio has declined only about 5 pps. over the 2014-2019 period, interest expenditure declined by 1,1 pps. to 2,3% of GDP in 2019 owing to favourable interest rate environment. At the same time, the average maturity of debt has been extended. Spain faces high fiscal sustainability risks in the medium term. This conclusion is based on both the sustainability gap indicator (S1) and the debt sustainability analysis. [] The former indicator indicates that Spain's structural primary balance would need to improve by 4.9% of GDP in cumulative terms over the five-year period to 2027 relative to the baseline scenario to bring the debt-to-GDP ratio to the reference value of 60% by 2042. The debt sustainability analysis indicates that under the baseline, which exceptionally assumes a gradual return of the structural balance to pre-crisis (forecast) level. [] Spain’s public debt is projected to stabilise, and slightly decline over the second half of the period, although remaining at a high level (reaching about 117,4% of GDP in 2031). This result is driven by the weak fiscal position (with a structural primary deficit), while the negative interest – growth rate differential is expected to remain negative, containing the debt dynamic. Moreover, the debt trajectory is sensitive to macroeconomic shocks. When taking into account a large range of possible temporary shocks to macroeconomic variables (through stochastic projections), it is probable that the debt ratio could be higher in 2025 than in 2020. Before the pandemic, macroeconomic imbalances had decreased, partly due to strong GDP growth. The imbalances related to high external and internal debt, both public and private, in a context of still high unemployment had cross-border relevance and were a source of vulnerability. In this regard, the COVID-19 crisis has exacerbated the imbalances that had persisted for several years in Spain, to a substantial extent due to the decline in GDP, and vulnerabilities linked to external, private sector and government debt remain. [] The implementation of policy measures in the Recovery and Resilience Plan can prove decisive to mitigate some outstanding vulnerabilities of the Spanish economy and steer a reduction of existing imbalances, particularly from 2022, when strong demand effects and possible carry-over effects from 2021 are expected to be accompanied by a gradual contribution from the supply side. The macroeconomic scenario underpinning the Spanish stability programme and the RRP is realistic in 2021 and 2022. The Commission 2021 spring forecast expects real GDP in Spain to grow by 5,9% in 2021 and 6,8% in 2022. This is slightly lower than the Government projections for GDP growth, as it is forecast to be of 6,5% in 2021 and 7,0% in 2022. While the Government’s projections are based on a more frontloaded use of the funds, resulting in a faster economic impact of the measures funded by the Recovery and Resilient Facility, the Commission expects a more gradual absorption. The macroeconomic and fiscal outlook continue to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences. While uncertainty has decreased slightly, the outlook for Spain’s economy is still subject to a larger degree of uncertainty than normal. This is due to uncertainties linked to the recovery of tourism-related activities, the response of private agents to the potential relaxation of confinement measures, and the size and impact of public measures to contain the effect of the pandemic and support the recovery, including the actual absorption of the RRP. Table 2.1. Comparison of macroeconomic developments and forecasts 2019 2020 2021 2022 2023 2024 COM RRP COM RRP RRP RRP Real GDP (% change) 2,0 -11,0 5,9 6,5 6,8 7,0 3,5 2,1 Inflation (% change)(1) 0,8 -0,3 1,4 1,2 1,1 1,5 1,6 1,9 Employment (15-74 years, % change) 2,3 -7,5 4,5 4,0 2,0 2,7 1,1 0,9 Unemployment rate (%) 14,1 15,5 15,7 15,2 14,4 14,1 13,2 12,7 GG net lending (% of GDP)(2) -2,9 -11,0 -7,6 -8,4 -5,2 -5,0 -4,1 -3,3 Government debt (% of GDP)(2) 95,5 120,0 119,6 119,5 116,9 115,1 113,3 112,1 (1) Inflation is the Harmonised Index of Consumer Prices except for the RRP figures, where it is the GDP deflator.

(2) For the RRP, the figures are from the Spanish Stability Programme 2021-2024, April 2021. 2.2.Challenges related to sustainable growth, cohesion, resilience and policies for the next generation Before the pandemic, Spain had enjoyed six years of strong economic growth accompanied by dynamic job creation. Between 2013 and 2019, real GDP grew by 16,5%, and employment by 14%, well above the euro area average. However, structural weaknesses remained. Despite the decline in unemployment, too many working age people remained without a job or could not make a decent living. Productivity was also growing slowly due to, among others, low innovation in many firms and regions, regulatory fragmentation and other barriers to firm growth, labour market segmentation and skills gaps. [] Spain is also one of the European countries most exposed to climate change, which poses important policy challenges for water and waste management, energy and resource efficiency, emissions and renewable energy. Smart, sustainable and inclusive growth In Spain, high labour market segmentation facilitates job destruction during downturns, makes unemployment highly pro-cyclical and hurts productivity and equality. About 22% (26% before the crisis) of employees in the private sector are on temporary contracts and in the public administration the figure reaches 30% (28% before the crisis). As the current crisis has shown, this puts the brunt of adjustments on temporary workers, while permanent workers tend to be more shielded from economic fluctuations. It also results in fewer incentives to invest in training of temporary workers, and therefore has a negative impact on labour productivity growth. In addition, workers with temporary contracts are in a more vulnerable position as they often earn lower salaries, and have less effective access to social protection, which fuels inequality and in-work poverty. Reducing labour market segmentation would therefore significantly improve productivity and reduce inequalities. The Spanish science and innovation system suffers from under-investment and weak governance. Notwithstanding the announced temporary increase in Spain’s public R&D expenditure, important bottlenecks remain. The governance system and financing mechanisms of Public Research Organizations (‘PRO’) and Universities coupled with their insufficient ability to build strong linkages with business hinder their scientific competitiveness and contribution to the Spanish economy. Despite the initiatives to enhance public research and private activities envisaged in the new Strategy for Science, Technology and Innovation (‘EECTI’) 2021-2027, the State Plan for Science, Technology and Innovation (‘PEICTI’) 2021-2023 and the RRP, further efforts to increase the block funding of PROs and Universities based on their performance, as well as to establish flexible and modern governance models that strengthen the links with the private sector are needed. Spain needs to reduce regulatory fragmentation and barriers and improve support to innovative businesses, in particular SMEs. Spain is one of the weakest performers in Single Market indicators. Regulatory fragmentation and barriers in Spain make SMEs less productive and not able to benefit from economies of scale. The Law on Market Unity, adopted in 2013, is an important tool to overcome market fragmentation and improve competition during the recovery. While it has been enforced by courts and competition authorities, a stronger and sustained coordination between the different levels of government is also essential for the law to deliver its full effects. Business would also benefit from a stronger framework for public procurement. Social and territorial cohesion The COVID-19 crisis may deteriorate social cohesion, in a context of pre-existing income inequalities and high risk of poverty or social exclusion, especially among children. High unemployment rates, labour market segmentation and the limited capacity of social transfers (excluding pensions) to reduce poverty weigh on social cohesion in Spain. Regional disparities are the widest in employment and social outcome indicators, where most regions underperform relative to the EU-average. There is a risk of widening regional disparities following the outbreak of the COVID-19 pandemic. The tourism sector was particularly hard hit by travel restrictions and lockdown measures. Hence, economic activity in regions with a high share of jobs related to tourism is disproportionately affected. This is particularly the case for the regions on the Mediterranean coast and the Balearic Islands and the Canary Islands, where more than one fourth of jobs are linked to tourism, whereas regions with a higher share of manufacturing and other service sectors are likely to rebound more easily after the lockdowns. The lack of opportunities and the search for better living conditions are the main cause of depopulation of rural areas. Overcoming the demographic challenge of the urban and rural divide should be mainstreamed into policy action to improve the business environment, access to basic public services in the fields of health, education and social-leisure, access to connectivity and digital skills, innovation and technology, and transport infrastructure. This would provide better conditions for enterprises to set up in rural areas, as well as for economic diversification and job creation in there. Health, and economic, social and institutional resilience The COVID-19 pandemic has revealed structural weaknesses in the Spanish health system. The unprecedented surge in demand for intensive care rapidly brought the health system close to a breaking point, stretching the health workforce to the limit, highlighting staff shortages and precarious working conditions. At the regional level, the crisis revealed uneven capacities to cope with the shock. The mechanisms of co-ordination across the regions, between health and long-term care, and between different levels of government have shown shortcomings. A more resilient health system is critical to better control potential disease outbreaks in the future. Issues to tackle are the modernisation of primary care, shortages in the healthcare workforce, prevention and health promotion measures, the integration of health and social care and the deployment of eHealth tools. The health system also needs to be adapted to the needs of the ageing population, as nearly 60% of Spaniards aged 65+ have at least one chronic disease, almost 40% have reported symptoms of depression and more than 20% have some limitations in daily activities. Measures adopted by the authorities to support corporates and households have helped mitigate the impact of the crisis on the banking sector. The banking sector was relatively robust at the on-set of the COVID-19 crisis with comparatively good asset quality, capitalisation and liquidity position. The borrower relief measures (i.e. legislative loan moratoria and voluntary moratoria granted by banks) and the public guarantee schemes have prevented the deterioration in asset quality and facilitated the flow of credit to the economy. Credit activity has been mainly supported by the expansion of lending to non-financial corporations backed by state guarantees. Banking sector capitalisation marginally improved supported by the supervisory and regulatory relief measures adopted since the onset of the pandemic. While no significant cliff-edge effects are expected when loan moratoria expire fully, a more marked deterioration in asset quality is likely to emerge once support measures are phased out. Due to the increase in loan-loss provisions and by one-off measures adopted by several banks, banking sector profitability has remained under pressure. Banking sector consolidation has continued notwithstanding the difficult operating environment for banks. Emergency measures have played an important role in cushioning the effect of the economic downturn in 2020, together with the existing tax and benefit system. Drops in households’ market incomes have been largely mitigated by the short-time work schemes (‘ERTEs’) and other emergency measures taken to protect incomes, as well as through the pre-existing tax and benefits system. [ ] The national minimum income scheme introduced in 2020 has also acted as a social safety net, and has the potential to overcome the previous fragmented systems. This way, automatic stabilisers and discretionary measures have limited the rise in income inequality and poverty risk. Improving the functioning of the fiscal framework is essential to warrant an efficient use of public investment to strengthen the medium- and long-term sustainability of public finances. Spain’s Independent Authority for Fiscal Responsibility (‘AIReF’) completed 11 expenditure reviews in 2019 and 2020, which also covered an assessment of existing tax benefits. If fully implemented, these have the potential to lead to improvements in the efficiency and effectiveness of public spending. The effectiveness of the tax administration could also be further enhanced. Improving the quality of public expenditure would also require strengthening the public procurement framework. Spain had already taken steps to comply with the Directive 2014/24/EU [] by creating the independent Office for Regulation and Supervision of Public Procurement and the National Evaluation Office. The first corresponds to the enforcement body under Article 83(1) of that Directive and has powers to act across the whole Spanish territory to fight breaches in procurement matters through its regulatory and supervisory action. The second is meant to issue mandatory reports analysing the financial sustainability of public works and service concession contracts prior to the approval of projects (serving as basis for tendering procedures) to both the central and local governments, as well as regional governments that decide to adhere to it. However, these governance bodies are not yet fully set up or completely operational and the adoption of the nation-wide public procurement strategy has been delayed. Their effectiveness will depend crucially on the resources allocated to its implementation and the degree of ownership at all levels of government. Policies for the next generation, children and youth, including education and skills. Spain could further enhance the labour-market relevance of its education system. The education expenditure as a share of GDP remains below the EU average and investment in education decreased in the last decade. Schools are well equipped with digital infrastructure and tools, but teachers’ digital competences are not always up to the challenge. Using digital means for teaching remains limited and students’ digital competences have to improve. In particular, the crisis has revealed a sharp socio-economic divide in students’ access to digital technology. In spite of recent improvements, Spain still has one of the highest rates of early leavers from education and training in the EU (16% in 2020), which contributes to the high share of low skilled in the working age population and exacerbates pre-existing socio-economic inequalities. Basic skills levels have not improved significantly and regional differences remain significant.

Spain is one of the countries with higher skill mismatches in the labour market in the EU. Medium to high-level technical skills, and especially ICT specialists, are in shortage. There are under-utilised skills in parallel, particularly amongst higher education graduates. Career guidance and orientation are key to reduce skills mismatches. The gender gap in science, technology, engineering and mathematics (‘STEM’) remains high. The relatively low enrolment in vocational education and training (‘VET’) amplifies shortages of medium to high technical skills, including those needed for the transition to a green and digital economy. Participation in adult learning is currently low, especially for low-skilled people, who represent one the highest share of the active population in the EU. The share of long-term unemployed in the active population is among the highest in the EU. Young people in Spain have the highest unemployment rate in the EU, and the share of “those neither employment, nor in education or training” remains well above the EU average. Public employment services and current active labour market policies are not effective enough in supporting sustainable jobs and re-skilling and up-skilling the workforce. Social expenditure remains oriented towards the older generations, while the high rate of child poverty weighs on equal opportunities. The difficult economic and social context resulting from the pandemic calls for a more balanced approach towards intergenerational solidarity in favour of the younger generations. The crisis is likely to increase the high level of poverty and social exclusion despite the new minimum income scheme introduced in 2020. In a context of very low fertility rates, families with children are particularly exposed. Social transfers (excluding pensions) have a low impact on child poverty reduction. Income support to children in Spain, which is one of the lowest in the EU, builds to a large extent on reducing the tax burden born by families with children. Lower-to-medium income families are not entitled to the country’s strict means-tested child benefits, partly integrated in the minimum income scheme as of 2021, and tax deductions are of a more limited advantage to them. Unemployment assistance for the long-term unemployed and those not qualifying for contributory schemes is currently scattered across multiple schemes, resulting in low coverage and effectiveness in activation. 2.3.Challenges related to the green and digital transition Green dimension The recovery and resilience plan should contribute to the green transition and at least 37% of the plan’s total allocation needs to contribute to climate objectives. The measures in the plan are expected to contribute to achieving the 2050 climate neutrality objective, and the increased 2030 energy and climate targets, taking into account the NECP. In particular, the financial contribution for Spain allows frontloading investments necessary to reach the EU increased climate ambition to reduce net greenhouse gas emissions by at least 55% by 2030 compared to 1990, towards EU climate neutrality by 2050, as agreed by the European Parliament and the Council within the Climate Law. It should also contribute to meeting environmental targets for waste, pollution control, sustainable mobility, biodiversity protection and restoration, marine and water resources, and support the transition to sustainable food systems, as well as to the circular economy, while ensuring that nobody is left behind. Water, waste and biodiversity Despite some progress, many challenges remain for water management in Spain. This applies to water governance, pricing policy and water body restoration. Implementing an appropriate pricing policy to recover the costs of services in all river basin districts would promote water efficiency, especially in the agriculture sector. Further infrastructure investments are needed to improve water management, such as wastewater collection and treatment, reduction of leaks in the networks and improve water supply. Despite efforts undertaken as part of the river basin management plans, the overall quality of groundwater has substantially deteriorated in recent years, and there is a need to reduce the surplus of nitrogen and phosphorus generated by agricultural activities. Despite efforts to modernise irrigation systems, pressure on water availability requires particular attention and continued progress is needed. Spain should take further advantage of the potential of reusing water. Despite progress in the transition towards the circular economy, waste management remains a challenge, but with substantial differences between regions. The amount of landfilled waste, which remains considerable, is preventing faster progress towards the circular economy. Spain is one of the countries who has missed the EU target of recycling 50% of municipal waste by 2020 (the overall recycling rate was of 35% in 2019). The EU has set up even more ambitious targets for the next decade, including achieving 55% recycling of municipal waste by 2025. Therefore, significant efforts are needed to increase the prevention, minimisation, sorting, reuse and recycling of waste, thereby diverting waste away from landfills or incinerators. Supporting circular economy innovations and business models could further support the circular economy in Spain. Spain has a very rich biodiversity. Around 27% of the Spanish territory is covered by the Natura 2000 network (EU average is 18%). This poses important challenges in terms of conservation, management and resources, but also provides important opportunities to preserve biodiversity, support ecosystem services and achieve positive outcomes from a socio-economic perspective. Spain could further capitalise on its rich natural capital to promote green growth and job creation, for instance, through more environmentally sustainable forms of tourism. GHG emissions and air quality The emission of several air pollutants has decreased over the last decades in Spain. However, ensuring a good level of air quality continues to raise concern, mainly related to nitrogen dioxide (NO2) emissions. In particular, conventional personal transport exacerbates existing problems with air quality and traffic congestion in the main metropolitan areas, namely Madrid and Barcelona, leading to health, social and economic costs that could be avoided or minimised. According to Spain’s existing climate targets, it aims to reduce greenhouse gas (GHG) emissions reduction by 23% by 2023 (compared to 2005) and to achieve climate neutrality by 2050. Spain has overachieved its 2020 target for GHG emission reductions in sectors not covered by the EU Emissions Trading System (‘ETS’). In these sectors GHG emissions have been reduced by 14%, well above the binding national target of 10% by 2020 under the Effort Sharing Regulation (‘ESR’). [] However, in the absence of new measures, Spain is expected to miss its existing 2030 GHG emission reduction target of 26% compared to 2005 by 10 percentage points. This could be avoided if the measures outlined in the NECP were implemented. In this scenario, the current 2030 ESR target would be overachieved by 13 percentage points. Transport is the sector in which GHG emissions continue to grow most. The transport sector accounted for 26% of GHG emissions in 2017. The transport measures in the NECP, including encouraging a modal shift, are key for Spain to achieve its GHG emission reduction targets. The NECP measures would lead to a reduction of GHG emissions from transport by one third. Spain should therefore implement the NECP, in particular regarding the measures proposed for the transport sector, to ensure achieving its GHG emission reduction goals. Climate change Spain is one of the Member States that is most exposed to the adverse effects of climate change. It is a core challenge anticipating and managing the adverse effects of climate change, such as floods, coastal erosion, droughts, heat waves, reduced water resources, loss of biodiversity and natural ecosystems, and forest fires. These natural hazards are expected to become even more frequent and extreme in the future. Therefore, measures in risk prevention and preparedness, climate change adaptation and nature-based solutions are required in Spain. Continued support to agricultural and forest practices that are beneficial for biodiversity and ecosystem resilience are needed, including fostering organic farming, promoting the sustainable use of pesticides, regenerating silvo-pastoral systems, preventing and managing forest fires, and promoting agro-forestry. Renewable energy Spain aims to contribute to the current EU’s 2030 target for renewable energy by reaching 42% of renewables in gross final energy consumption by 2030. This ambition is above the required share of 32% of renewables in gross final energy consumption that results from the formula in Annex II to Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action. [ The largest share of renewable energy is attributed to the electricity sector. To achieve the target, Spain should focus on further developing electricity from renewable sources (e.g. offshore wind, solar), fostering renewable hydrogen and support the sectoral integration of renewable energy. Promoting the use of renewable heating and cooling systems is also needed. Full implementation of the NECP would allow Spain to achieve a substantial increase in renewables with a view to achieve climate neutrality by 2050. Further reflection on how to improve the integration of the energy system could also help making this increase more cost-effective. While increasing the share of renewable energy sources, Spain needs to fully take into account the impact from combustible renewable fuels on air quality. Energy efficiency Fostering energy renovations of buildings remains a challenge, but it could speed up energy savings and contribute to the economic recovery. In the context of the Renovation Wave, there is scope for Spain to intensify efforts to improve the energy performance of the existing building stock, including with the aim to address energy poverty. Such measures would ensure achieving the national contribution for energy efficiency and the cumulative energy savings target. It is estimated that following an average annual renovation rate of 2,6% at the cost optimal level, the primary energy saving potential in Spain is approximately 108 TWh by 2050. Over the 2021-2050 period, this is expected to generate more than 7 million of full time equivalent jobs. [ ] In the NECP, Spain has a number of specific energy-efficiency actions for buildings, including to renovate (i) 1 200 000 residential buildings by 2030, and (ii) heating and cooling systems of 300 000 residential buildings on average per year. Electricity interconnectors

Continued cooperation with France and Portugal is key to foster the internal energy market and ensure energy security, in particular by supporting cross-border and cross-regional interconnections. The NECP sets the targets of 10% energy interconnection capacity by 2020 and 15% by 2030. These targets emphasise the need to implement key infrastructure projects, notably planned Important Projects of Common European Interest (‘IPCEIs’) as well as several grid-reinforcement projects necessary to further integrate renewable energy capacity. Spain should continue to increase the level of energy interconnection capacity to achieve the 2030 target. The table below gives an overview of Spain’s objectives, targets and contributions under the Governance Regulation. Table 2.3.1: Overview of Spain’s objectives, targets and contributions under the Governance Regulation National targets and contributions Latest available data 2020 2030 Assessment of 2030 ambition level Binding target for greenhouse gas emissions compared to 2005 under the Effort Sharing Regulation (%) -14% - 10% -26% As in ESR. Total GHG target implies -39% National target/contribution for renewable energy: Share of energy from renewable sources in gross final consumption of energy (%) 18,4% (2019) 20% 42% Sufficiently ambitious (the result of the RES formula is 32%) National contribution for energy efficiency: Primary energy consumption (Mtoe) 120,8 (2019) 123,4 98,5 Sufficient Final energy consumption (Mtoe) 86,3 (2019) 87,23 73,6 Sufficient Level of electricity interconnectivity (%) 6,5% 10% 15% N/A Sources: Assessment of the final national energy and climate plan of Spain, SWD (2020) 908 final; Eurostat where data is indicated for specific years. Digital dimension [] The recovery and resilience plan should contribute to the digital transition and at least 20% of the plan’s total allocation needs to contribute to digital objectives. The measures in the plan should, inter alia, contribute to the digital transformation of the economic and social sectors (including public administration, public services, and the justice and health systems). The objective of the measures in the plan should be to improve not only the competitiveness, but also the resilience, agility and security of companies and public actors, all while ensuring inclusiveness. Spain is an intermediate performer on the European Commission’s Digital Economy and Society Index (‘DESI’) for 2020. The main deficit lies in human capital, according to DESI. Investments that enable students and schools to develop virtual classes became extremely important during the COVID-19 crisis. In 2019, 43% of the Spanish population lacked basic digital skills. To increase resilience, Spain should also further promote the digitalisation of businesses, including SMEs, very small enterprises and the self-employed, to help them in the transition towards the digitalisation of productive processes and distributions channels (enhancing e-commerce). Spanish firms could also increase their productivity and competitiveness through improved management competences. Spain’s overall connectivity score has further improved, but the rank remains 5th in the DESI 2020. The country performs particularly well when it comes to VHCN (Very High Capacity Network) coverage. The deployment of FTTP (Fiber to the premises) networks continues to be an important feature of the Spanish digital market, covering 84.9% of households, above the EU average of 42,5%. Despite the significant differences between urban and rural areas, rural FTTP coverage in Spain reaches 59,5% of households, significantly above the rates of both EU rural and total FTTP coverage (21% and 34% respectively). In June 2019, SETID (Secretaría de Estado de Telecomunicaciones e Infraestructuras Digitales) published a draft proposal for managing the 700 MHz, 1,5 GHz and 26 MHz bands in which general aspects of the auctions where consulted. After delays due to the COVID 19 pandemic, the tender specification and launch of the auction for the 700 MHz band was published on 31 May 2021. Spain decreased four positions in the 5G readiness indicator (from 6th to 10th), as it has not assigned any additional spectrum in the 5G pioneer bands. According to the European Index of Digital Entrepreneurship Systems (‘EIDES’) [ ], that compares framework conditions for digital start-ups and scale-ups in Europe, framework conditions for digital start-ups and scale-ups in Spain considerably improved between 2018 and 2020. As a result, Spain moved from the Catchers-up to the Followers group. Relative strengths of the Spanish digital innovation ecosystem include access to finance and networking and support. Among weaknesses of the Spanish digital innovation ecosystem are culture and informal institutions and regulation and taxation. The level of venture capital and artificial intelligence investments in Spain reflect the positive improvements of framework conditions for start-ups and scale-ups in Spain. Between 2014 and 2019, venture capital investments increased approximately threefold from around EUR 0,5 billion in 2014 to nearly EUR 1,5 billion in 2019. With the level of artificial intelligence investments between EUR 16,3 and EUR 18 per capita, Spain lies above the EU average. However, at 0,06% of GDP in 2020 (cf. 0,16% for EU27), venture capital financing fell back to 2017 levels, and thus remains underdeveloped. [ ] The wide digital gap between urban and rural areas remains to be closed. Overall, connectivity is good, but Next Generation Access broadband coverage in rural areas is only 58,7% (2019) as compared to almost 92% at national level. Improved coverage would support the digital transition of the Spanish farming sector, for example through reinforced efforts on digital skills in rural areas and by exploiting the digital technologies to better monitor and optimise agricultural production processes. Spain ranks 16th in the EU on human digital capital in DESI 2020, rising in the ranking since the previous year. The level of basic digital skill is around the EU average: 43% of people between 16 and 74 years of age lack basic digital skills (against the EU average of 42%). The share of ICT specialists in total employment increased and it is now close to the EU average (3,8% against EU average of 3,9%). The share of ICT graduates in Spain also increased and now accounts for 4% of all graduates. The share of female ICT specialists remains stagnant at a mere 1,1% of total female employment. In 2019, Spain signed the European Declaration on boosting the participation of women in digital. Regarding the higher education offer of advanced digital skills, Spain has an intermediate position. Spain holds a higher proportion of masters’ programs teaching high-performance computing than the EU average (1,28% against 1,20% in the EU), and data science (4,88% against 4,61% in the EU). The penetration rate is however lower than in the EU for artificial intelligence (3,44% against 3,93%) and cybersecurity (1,52% against 1,86%). [ ] Confinement measures may explain the increase in the use of internet services in Spain in 2020, with the country performing above the EU average. People in Spain are keen to carry out a range of online activities in line with the rest of the EU, such as making video calls, reading news online or using social networks. Compared to the EU average, the highest ranked activities are taking online courses and playing music, videos and games online. On the integration of digital technology, Spain ranks 13th among EU countries in DESI 2020. Spanish businesses take advantage of the opportunities presented by digital technologies in line with the EU average, as 43% of businesses have an electronic information sharing system in place (against the EU average of 34%) and 9% of Spanish businesses access big data analysis (against 14%). Almost one third have at least two social media accounts to promote their products and services and 22% of companies use the cloud (26% in the EU). Finally, 24% of SMEs sell online (above the EU average of 17%), though only 7% of all SMEs sell across borders to other EU countries and 10% of turnover is generated by online sales. The adoption of new digital technologies will provide benefits in many sectors of the Spanish economy. Spain stands to benefit greatly from the digital transformation if all SMEs and micro-enterprises adopt the use of new technologies in their business activities. According to the DESI 2020, measures to include digitisation and embrace AI and other emerging technologies can boost the innovation capacity of the Spanish economy, driven by SMEs. Spain ranks 2nd in the EU on digital public services in DESI 2020, well above the EU average. Spain rose by two positions in the 2020 ranking compared to the previous year. This is the chapter in which the country performs best. Indicators show a high level of online interaction between public authorities, citizens and businesses. Spain performs very well on the open data indicator, with 94% of the maximum score. 82% of Spanish internet users actively engage with e-government services, 6 percentage points more than the previous year. Graph 2.3.2: Performance of Spain in the Digital Economy and Society Index (DESI 2020)

Note: EU aggregate corresponds to EU28, based on 2020 DESI report. Box 2.3.3: Progress towards the Sustainable Development Goals and the four dimensions underpinning the Annual Sustainable Growth Strategy The objectives of the Sustainable Development Goals (SDGs) have been integrated in the European Semester since the 2020 cycle. This integration provides a strong commitment towards sustainability in coordination with the economic and employment policies of the EU. In that respect, this section outlines Spain’s performance with respect to the SDGs with particular focus on the four dimensions underpinning the 2021 Annual Sustainable Growth Strategy and in relation to its relevance to the RRP (green transition, fairness, digital transition and productivity, and macroeconomic stability), indicating possible areas where investments and reforms in line with the objectives of the Facility could further accelerate the progress on the SDGs. Green Transition Spain has made progress on almost all SDGs related to the green transition. Progress has been recoded especially for SDG 13 “Climate action”, where Spain has reduced its GHG emission intensity of energy consumption by 17% between 2000 and 2018, above the EU average of 15%. This is also reflected in the increase of the share of renewable energy in gross final consumption to 18,4% in 2019. Also for SDG 14 “Life below water”, Spain shows good progress: in coastal bathing sites with excellent water quality as a share of all coastal bathing sites, Spain has increased from 87% in 2013 to over 93% in 2019, above the EU average of 88% in 2019. Progress has also been made for SDG 7 “Ensure access to affordable, reliable, sustainable and modern energy for all”, where Spain has increased its share of renewable energy in gross final energy consumption from 15% in 2013 to 18% in 2019. However, Spain remains below the EU average of 20% in 2019. For SDG 11 “Sustainable cities and communities”, Spain has slightly increased its municipal waste recycling rate of 32,5% in 2013 to 35% in 2019 but remains substantially below the EU average of over 47%. Fairness Prior to the pandemic, Spain had made moderate progress on almost all SDGs related to fairness. Good progress has been recorded for the SDG 5 “Gender equality”, where the gender pay gap has decreased by 3 percentage points between 2014 and 2020, significantly faster than in the EU on average and from a level that was already below the EU average. The participation in early childhood education for children aged between 4 and compulsory school age has increased from 97,1 in 2014 to 97,8% in 2019, above the EU average (SDG 4 “Quality education”). For SDG 10 “Reduced inequalities”, Spain has reduced its income inequality faster than the EU on average from 6,81 in 2014 to 5,94 in 2019, but still remained above the EU average in 2019 (4,99). Similarly the share of people at risk of poverty or social exclusion (SDG 1 “No poverty”) declined from 29,2% in 2014 to 25,3% in 2019, but remained well above the EU average (20,9%). The decline was mainly driven by the fall in the share of people living in households with zero or very low work intensity from 17,1% in 2014 to 10,8% in 2019, remaining however well above the EU average (8,3%). Notwithstanding the improvements, the current levels for some indicators are among the highest in the EU such as for the share of early school leavers (16% vs % 10,1% in 2020 respectively in Spain and the EU on average), in-work poverty (12,7% vs 9% in 2019) and people at risk of poverty (20,7% vs 16,5% in 2019). Digital transition and productivity When it comes to the digital transition and productivity, progress is also observed for most SDGs, although performance in a number of them still remains below the EU. For the SDG 4 “Quality education” Spain made strong progress in reducing the share of early leavers from education and training to below 20%. Also for SDG 8 “Decent work and economic growth”, Spain made progress in reducing the share of young people neither in employment nor in education and training (‘NEET’) from 19,4% in 2015 to 17,3% in 2020, and in increasing the employment rate from 62% in 2015 to 65,7% in 2020, although most of the progress occurred until 2019 before the crisis. Despite the progress Spain still performs clearly below the EU average for early leavers, NEETs and the employment rate. For SDG 9 “Industry, innovation and infrastructure”, Spain slightly increased the share of GDP spent on R&D, but the figure remains well below the EU average of 2%. Similarly, Spain slightly increased the share of personnel employed in R&D over the same period, while remaining clearly below the EU average. Macroeconomic stability Due to the impact of the COVID crisis, real GDP per capita in Spain was lower in 2020 compared to 2015 (SDG 8 “Decent work and economic growth). This is reflected in a rapid increase of the general government debt to GDP ratio, from 99,3 % in 2015 to 120% in 2020, to levels clearly above the EU average (90.7% in 2020). Investments as a share of GDP have grown up to close to 20% in 2019, though are still lower than in the EU on average, but overall resource productivity, measured as euros per kilogram, has risen strongly between 2014 and 2019 from 2,65 to 2,8, and is clearly higher than in the EU on average (2,09 in 2019). 3.Objectives, structure and governance of the plan 3.1.Overall strategy of the plan The Recovery and Resilience Plan of Spain (the ‘plan’) is conceived as a roadmap for the recovery and modernisation of the Spanish economy after the COVID-19 crisis. The plan broadens the scope of the programme of structural reforms set forth by the government in the 2019 Agenda for Change. It has a triple objective to: (i) work as a countercyclical lever to provide momentum to the economy in the short term, (ii) support the large structural transformation of the economy, and (iii) steer the transformation towards a more sustainable and resilient growth model. The plan will entail a significant volume of public and private investment in the coming years. It aims at mobilizing EUR 9,5 billion of non-repayable support primarily concentrated in the first three years (2021-2023), to maximize their impact on the rapid reconstruction of the economy. The plan is structured around four cross-cutting axis placed at the centre of the economic policy strategy from the outset: ecological transition, digital transformation, gender equality and social and territorial cohesion. The ten policy areas of the Plan aim at driving activity and employment to modernise the economy and society of Spain: (i) urban and rural agenda, the fight against rural depopulation and agricultural development; (ii) resilient infrastructures and ecosystems; (iii) a just and inclusive energy transition; (iv) a public administration for the 21st century; (v) modernisation and digitalisation of the industrial fabric and SMEs, recovery of the tourism sector and promotion of Spain as an entrepreneurial nation; (vi) pledge to support science and innovation and strengthen the capabilities of the national health system; (vii) education and knowledge, lifelong learning and capacity building; (viii) the new care economy and employment policies; (ix) promotion of the culture and sports industries and; (x) modernisation of the tax system for inclusive and sustainable growth. These ten policy areas translate into the 30 components of the Plan. For the remainder of the document, Components in the Plan will be named as in Table 3.1 below (note: these names are short versions of the full titles used by Spain in the RRP). Table 3.1: Overview of the plan: components and estimated costs Policy Area Component (shortened names) Estimated costs (EUR m) 01. Urban and rural agenda, combating depopulation and developing agriculture 01. Sustainable mobility (urban) 6 536 02. Renovation 6 820 03. Agri-food and fisheries 1 051 02. Resilient infrastructures and ecosystems 04. Ecosystems and biodiversity 1 642 05. Coast and water resources 2 091 06. Sustainable mobility (long-distance) 6 667 03. Fair and inclusive energy transition 07. Renewables 3 165 08. Electricity infrastructure 1 365 09. Hydrogen 1 555 10. Just transition 300 04. An administration for the XXI century 11. Public administration 4 239 05. Modernisation and digitalisation of the industrial and SME fabric, restoring tourism and boosting Spain’s entrepreneurial nation 12. Industrial policy 3 782 13. Support to SMEs 4 894 14. Tourism 3 400 15. Digital connectivity 3 999 06. A pact for science and innovation. Capacity building of the National Health System 16. Artificial Intelligence 500 17. Science, technology and innovation 3 457 18. Reform of health system 1 069 07. Education and knowledge, continuing training and skills development 19. Digital skills 3 593 20. Vocational training 2 076 21. Education 1 648 08. New care economy and employment policies 22. Care economy, equality and inclusion 2 492 23. Labour market 2 363 09. Boosting the culture and sport industry 24. Cultural industry 325 25. Audiovisual 200 26. Sports 300 10. Modernisation of the tax system for inclusive and sustainable growth 27. Prevention of tax fraud - 28. Tax system - 29. Effective public spending - 30. Pension system reform - TOTAL 69 528 []

The first policy area contains measures to facilitate the urban and rural agenda of Spain (Components 1 (Sustainable urban mobility), 2 (Renovation) and 3 (Agri-food and fisheries)). They include measures to foster the energy renovation of buildings, including social housing, and to promote sustainable mobility in urban and metropolitan areas. The COVID-19 pandemic has also highlighted the importance of a robust agri-food system with the highest environmental standards, and measures in the components seek to reinforce it, boosting also its environmental and digital transformation. The second policy area focuses on the resilience of ecosystems and infrastructures. Attention is devoted to the natural capital of Spain (biodiversity, coastal zones and water resources), with a view to strengthening nature-based solutions to adapt to climate change (Components 4 (Ecosystems and Biodiversity) and 5 (Coast and Water Resources)). When it comes to infrastructures, the Plan is also expected to support logistics and inter-modality, foster the development of the European railway network as well as the digitalisation and sustainability of freight transport through measures in Component 6 (Sustainable Long-Distance Mobility). This will allow to mobilise large volumes of investment and have a structural impact on society and the economy. The third policy area seeks to foster a decarbonised, competitive and efficient energy sector (Components 7 (Renewables), 8 (Electricity infrastructure), 9 (Hydrogen) and 10 (Just Transition)). Its objective is to harness the renewable energy potential of Spain and existing value chains relevant for competitiveness. It should also promote the development of fast-growing sectors in Spain. The aim of the fourth policy area is to modernise the public administration of Spain (Component 11 (Public administration)). It mostly aims at the modernisation of administrative processes, including via the digitalisation of the administration, as well as the energy transition of its infrastructure and fleets of vehicles. Measures strengthening the public procurement framework and coordination between levels of government, as well the introduction of an ex-ante public policy evaluation, have also been included. Finally, it also introduces measures to improve recruitment for civil servants and to reduce the share of temporary workers in the public sector. The fifth policy area should contribute to the modernisation of the industry-services ecosystem in Spain (Components 12 (Industrial Policy), 13 (Support to SMEs), 14 (Tourism) and 15 (Digital Connectivity)). It will seek to accelerate the digitalisation and energy transition of industry in Spain, amongst others through strategic projects affecting the whole value chain in certain areas. Some of the actions will prepare the ground for firms to be able to take part in planned IPCEIs. The aim is to promote services at the forefront of innovation and technological development and first industrial deployment in key areas such as next generation cloud infrastructure and edge services, microelectronics, secure satellite communications and automotive batteries. SMEs are the focus of several measures in this policy area, given their importance in Spain. Measures to improve the business environment, including through a more efficient justice system, are also envisaged. There is a strong focus on supporting the competitiveness of SMEs. Measures to support the modernisation of the tourism industry are part of this policy area. The sixth policy area focuses on science and innovation in general, notably in some strategic determinants, such as artificial intelligence, and it promotes reforms and investments in the health system (Components 16 (Artificial Intelligence), 17 (Science, technology and innovation) and 18 (Reform of the health system)). It should enable Spanish firms and researchers to participate more actively in a stronger pan-European research system. The impulse given to research and innovation should underpin and accelerate the modernisation of production processes. First, through the incorporation of existing technologies to incremental innovation and an increase in competitiveness and intangible assets, but also through the launch of innovation processes with a truly disruptive perspective. Measures also aim at rendering the national health system more resilient to ensure the efficient response during shocks and address more systemic challenges which the COVID-19 pandemic highlighted. The seventh policy area seeks to strengthen talent and skills at all levels in Spain, with a particular focus on digital skills and vocational education and training (VET), which are key for the green and digital transitions (Components 19 (Digital Skills), 20 (Vocational Training) and 21 (Education)). It also seeks to promote activity in the areas of skills transfer and training. The eighth policy area puts forward proposals to address the high structural unemployment rate and segmentation among workers and to reduce child poverty (Components 22 (Care Economy, Equality and Inclusion) and 23 (Labour market)). The set of measures envisage to address duality and to reduce adjustments that seek to cope with adverse economic situations through job destruction, in an attempt to preserve employment and fight precariousness. The definition of its detail has been explicitly left open, with a view to leaving space for the agreement and endorsement by social partners. A reform of family support aims at improving protection and material support (in cash and in kind) for families, with a view to reducing child poverty. Finally, another reform aims at modernising other non-contributory social benefits to improve their protection and activation roles. The ninth policy area seeks to boost the culture, audiovisual production and videogames and sports sector, which pay an important contribution to economic activity and to the well-being and health of persons (Components 24 (Cultural industry), 25 (Audiovisual) and 26 (Sports)). Advantage is taken in these fields of the opportunities brought by digitalisation. Finally, the tenth policy area envisages a comprehensive reform of the tax system with a view to increasing revenues and decreasing expenditure in the form of tax rebates. This is done to regain fiscal sustainability and sustain investments put in motion with the support of the RRF, while improving the fairness of the system and fostering environmental taxation. It also aims at reforming the pension system by building on the Toledo Pact recommendations, which benefit from a broad parliamentary consensus (Components 27 (Preventing Tax Fraud), 28 (Tax system reform), 29 (Effective Public Spending) and 30 (Pension System Reform)). The plan contains 102 reforms and 109 investments. As regards timing, the plan foresees that practically all reforms will be adopted and implemented within the timespan 2021-2023. As regards investments, while those envisaged under five components will be fully delivered by 2023, for the remaining components with investments (21) a part of the investments will be fully implemented after that date.



3.2.Implementation aspects of the plan Consistency with other programmes The Plan of Spain provides detailed justification for its consistency with the objectives and priorities of other initiatives, such as the National Reform Programme of Spain, the European Digital Agenda and the National Energy and Climate Plan. While no information is provided on the Youth Guarantee implementation plans, there are no indications in the information provided that indicate that inconsistencies would arise. As regards the Multiannual Financial Framework 2021-2027, the Partnership Agreement with Spain and the Operational programmes to be developed for the implementation of the Structural Funds are still at very preliminary stages of preparation. The RRP stipulates that their structure shall complement the projects supported by the RRF to optimise the use of all the European funds allocated to Spain. This is particularly relevant for areas where investments that will be kick-started with RRF support could at a later stage benefit from support under ERDF and ESF+ in order to ensure their impact in the long-term, such as the creation of new places in VET or early childhood schooling. Finally, the plan indicates that most regions have prepared or updated their own strategic investment plans, which appear to be broadly aligned with the 30 components of the RRP. Spain will neither use RRF funds for support under the Technical Support Instrument, nor to contribute to its national compartment under the InvestEU programme. Consistency with the challenges and priorities identified in the most recent euro area recommendations The plan of Spain is aligned with the Commission Recommendation for a Council Recommendation on the economic policy of the euro area, which will set out the general policy framework for Member States and their respective Recovery and Resilience Plans []. ·In relation to recommendation 1 to ensure a policy stance which supports the recovery, measures in the RRP are expected to continue to mitigate the impact of the crisis and trigger recovery. In the medium term, the commitment to support investment and restore the sustainability of public finances will come will come notably through measures in Components 28 (Tax system reform) and 29 (Effective Public Spending), which aim to strengthen the fiscal system and improve the efficiency of public spending, respectively. The modernisation of public procurement envisaged in Component11 (Public Administration) of the plan can also play a role in this respect.

·With respect to recommendation 2 to improve convergence, resilience and sustainable and inclusive growth, reforms and investments in the plan are expected to support productivity and better functioning markets and public administrations. This should foster private investment to address the recovery and the twin green and digital transition. The plan also shows commitment to deepen the Internal Market in its Component 13 (Support to SMEs), including the digital one through Component 15 (Digital Connectivity). In parallel, efforts will be made to correct labour market segmentation in Component 23 (Labour market reform), to match the skills of human capital through the modernisation of education and training in Components 20 (VET) and 21 (Education), and to promote effective active labour market policies across the national territory in Component 23 (Labour market reform). This is to be done within the framework of social dialogue and with the broadest possible consensus, with a view to ensuring that reforms are effective in the medium and long term. Further reforms of the tax system are planned under Component 28 (Tax reform system) of this Plan to move towards greener taxation. ·When it comes to recommendation 3 to strengthen national institutional frameworks, measures have been taken to simplify administrative procedures for the efficient absorption of European funds, in particular those of the RRF. The Plan also provides for measures to modernise and digitalise public administrations in its Component 11 (Public Administration), particularly in the areas of health, justice and public employment services. In the area of business climate, reforms envisaged as part of Component 13 (Support to SMEs) can help remove unnecessary or disproportionate administrative barriers to business creation and growth. They can also facilitate business restructuring processes through amendments to the insolvency framework. ·In relation to recommendation 4 to ensure macro-financial stability, the positive impact of the plan on economic resilience and long-term fiscal sustainability should come through fiscal adjustments foreseen in Components 28 (Tax reform system), 29 (Effective public spending) and 30 (Pension system reform), in addition to the increase in potential growth resulting from the implementation of the plan itself. National arrangements for the implementation of the plan The national arrangements for the implementation of the plan have been set out in Royal Decree-Law 36/2020 of 30 December approving urgent measures for the modernisation of the public administration and the implementation of the Recovery Plan []. A Commission for Recovery, Transformation and Resilience, which gathers all Ministers competent for the plan, has been set up and will be chaired by the President of the Government. The Deputy Ministers for Economic Affairs and Business Support, Finance, Budget and Expenditure, Social Rights, the Secretary General for European Funds, and the Secretary General for Economic Affairs and G20 of the Cabinet Office of the Prime Minister will also take part in it. This Commission has established the general policy guidelines for the development and implementation of the Recovery Plan and shall monitor its implementation. Its work will be assisted by a Technical Committee of 20 members of the public administration chaired by the Secretariat-General for European Funds. A newly set up Secretariat-General for European Funds within the Ministry of Finance will be the responsible authority for the plan vis-a-vis the European Commission. Together with a new Directorate-General for the Recovery and Resilience Facility, the existing Directorate-General for European Funds, which has gained experience over decades in the management of European Funds, will also be part of this Secretariat-General. This authority will be key in monitoring the submission of payment claims, which will be based on the achievement of milestones and targets. While the Ministry responsible for each measure will be in charge of taking action to achieve the related milestones and objectives in line with the budgeted resources, the Secretariat-General for European Funds will be the body drawing up the requests for payment to the European Commission. Each payment request shall be accompanied by a management declaration based on reports issued by the bodies responsible for the components. In addition, the General Comptroller of the State Administration (Intervención General de la Administración del Estado - IGAE) will carry out checks to certify the achievement of milestones and objectives, as well as the results achieved. Funds allocated to the implementation of the plan will be included in the budget of the central government. Spain will have in place a system capable of downloading all information required in accordance with Article 22(2), point (d), of the RRF Regulation, should the Commission request it. Arrangements have been set up to involve key actors to implement the plan. A new Sectoral Conference for the plan is set up with the aim of channelling cooperation between regions, local entities and central government to implement the plan. As regards parliamentary scrutiny, Article 22 of Royal Decree-Law 36/2020 provides that the government shall report quarterly on the progress of the Recovery, Transformation and Resilience Plan to the Joint Parliamentary Committee for the European Union. Gender equality and equal opportunities for all The RRP of Spain has a strong focus on gender equality, which is one of the cross-cutting axes guiding the Spanish recovery process, alongside the green transition, digital transformation, and social and territorial cohesion. Spain describes existing national challenges in terms of gender equality, including whether they result from the pandemic or are more structural, and presents the expected impacts of the plan on gender gaps (employment, pay, digital skills). The plan describes to a lesser extent challenges related to equal opportunities for all. It follows a dual approach: on the one hand, it encourages the development of processes that incorporate gender equality and equal opportunities for all, such as data collection, inclusion of equality considerations in public procurements, calls for public tenders or consultations. On the other hand, the plan also assesses the extent to which and how each component contributes to these equality objectives. The assessment of the contribution of the plan to address existing challenges is contained in Section 4.3. Consultation process The plan includes a summary of outreach efforts carried out to prepare the plan. Article 18(4), point (q), of the Recovery and Resilience Regulation stipulates that RRPs shall include a summary of the consultation process carried out for their preparation and implementation. The objective of the consultation is to improve the quality of the RRPs and enhance transparency, as well as to ensure the effective implementation of reforms and investments. While RRPs are prepared at national level for coordination and coherence, ensuring national ownership is key for their effectiveness, which is assessed in Sections 4.7 and 4.8. Several targeted consultations for the preparation of the plan have taken place in Spain. Spain has not carried out a public consultation on the plan as a whole. Instead, it has opted for targeted consultations that focused on certain measures or policies. Several consultations have gathered input on specific measures from social partners and stakeholders, including potential beneficiaries of the plan. With regards to involving the Parliament, Article 22 of Royal Decree-Law 36/2020 of 30 December on the implementation of the Recovery, Transformation and Resilience Plan, provides that the Government shall report quarterly on the progress of the Recovery, Transformation and Resilience Plan to the Joint Parliamentary Committee for the European Union. Two hearings were held with that Committee on 29 January and 25 February 2021, with the aim of providing information on the plan and of providing a space for discussion with the other parliamentary groups. A summary of the plan was presented by the Prime Minister and debated in Parliament on 14 April 2021. [] Ownership of the plan by regions will be key for effective delivery, since they play a key role in the design and implementation of many policies and investments. The Regulation recognises regional and local authorities as key partners to implement reforms and investments. In this regard, sectoral conferences are the mechanism where representatives of central and regional governments competent for a given area meet to cooperate. The new sectoral conference for the Recovery and Resilience Facility has met for its set-up (21 January), and to have the plan to be submitted to the Commission presented to it (19 April). The RRP submitted on 30 April explains that sectoral conferences responsible for individual sectors have discussed several specific measures of the plan. A more active involvement of the regions could facilitate an effective implementation of reforms and investments. When it comes to the more than 8 000 local authorities, they have been included in the dialogue through their representative body, the Spanish Federation of Municipalities and Provinces. This Federation participates in the Sectoral Conference of the Recovery, Transformation and Resilience Plan. The specific input of local authorities for measures on mobility was sought in ad hoc meetings and through three specific calls for expressions of interest. Social partners and other stakeholders, including individual companies and experts, have given views on specific measures. A dedicated Dialogue Table for the RRP was set up to serve as a forum for the government and social partners to meet to consult and monitor. Furthermore, a number of legislative reforms envisaged as part of Component 23 (Labour Market) of the plan are subject to the social dialogue process and the description of their detail has been left open to preserve that process. As regards the consultation of business on investments to be made, Spain has used calls for expressions of interest. Various Ministries have made at least nineteen calls for expressions of interest with a common and coordinated pattern (see Table 4.8.1). Calls have enabled economic actors to identify transformative projects. The different Ministries have collected a wide range of proposals that will serve as basis for strategic projects to be supported by the plan. Since the calls are addressed to potential beneficiaries, it is important that competition is not distorted in the subsequent calls for grants that may follow the specific projects to be defined. Finally, several fora of experts and advisory councils have provided input too. Digital security self-assessment Spain has provided a security self-assessment for investments in digital capacities and connectivity. In Component 15 (Digital Connectivity) of the plan, Spain explains that, as part of the two reforms envisaged under the component, it will adopt the recommendation of the European Commission on Connectivity [and the law on the requirements to ensure the security of 5G electronic communications networks and services, which will include the key recommendations of the European Commission Communication of 29 January 2020 “Secure 5G deployment in the EU — Implementation of the EU toolbox” []). For investments in data spaces, Spain explains that the security assessment will align to the evolving work programmes of the European Union on cybersecurity certification, as laid down in Regulation (EU) 2019/881 of the European Parliament and of the Council on ENISA (European Cybersecurity Agency) and on information and communications technology cybersecurity certification. Strategic measures mentioned in the security self-assessment would need to be closely monitored during the implementation of the plan. Cross-border and multi-country projects The RRP of Spain includes measures that are expected to contribute to progress on existing or future cross-border or multi-country projects. This is the case in transport (TEN-T in Component 6 (long-distance sustainable mobility)). There are also cross-border projects investments in connectivity foreseen in the Connecting Europe Facility 2 (EUR 125 million to improve digital connectivity by means of submarine cables in Component 15 (Digital connectivity) and participation in multi-country projects in research and innovation (R&I partnerships in Horizon 2020 and Horizon Europe, pan-European research infrastructures and multi-country projects for health purposes (The Genome of Europe, personalised medicine and high security laboratories) in Component 17 (Science, technology and innovation). Finally, the plan also includes measures that would facilitate the participation of Spanish firms in planned cross-border or multi-country projects, including on Important Projects of Common European Interest (IPCEIs). These measures relate to projects on renewable hydrogen (EUR 300-750 million in Component 9 (Hydrogen) []), industrial value chains, including the one for the production of electric vehicles (EUR 2,5 billion in Component 12 (Industrial Policy)), secure satellites communications, next generation cloud and edge computing and microprocessors (EUR 375 million in Component 15). In this context, Section 2.5.3 of the RRP refers in detail to cooperation plans with Portugal, France and Italy to advance on specific areas. Communication Strategy The government is finalising a communication strategy on the plan, including on access to finance for businesses and citizens. This strategy, which aims at increasing public awareness of the role of the European Union in overcoming the crisis, with a specific focus on the contribution of youth to the European project. The Communication on the RRF will seek to ensure transparency on the reforms and investments envisaged as part of the RRP, as well as on progress towards meeting the milestones and targets. Specific attention will be paid to communicating the plan’s contribution to the digital and green transition. Information about opportunities will be provided to potential beneficiaries, as well as on the requirements, allocation and management of the funds. Finally, communication actions will also target management authorities (including regions and local authorities) as regards their responsibilities for the management, monitoring and control of funded actions.

A specific web site for dissemination of information on the RRP is ready to be launched upon adoption of the Council Implementing Decision. In addition, dedicated events will be organised focused on communicating the general elements of the plan and specific components. Specific actions will also target media focusing on communication of opportunities and the development and impact of measures, increasing public awareness more generally. Component 11 (Public administration) provides further details regarding this communication strategy. State aid State aid and competition rules fully apply to the measures funded by the Recovery and Resilience Facility. Union funds channelled through the authorities of Member States, like the RRF funds, become State resources and can constitute State aid if all the other criteria of Article 107(1) TFEU are met. When this is the case and State aid is present, these measures must be notified and approved by the Commission before Member States can grant the aid, unless those measures are covered by an existing aid scheme or comply with the applicable conditions of a block exemption regulation, in particular the General Block Exemption Regulation (‘GBER’) declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 TFEU []. When State aid is present and it requires notification, it is the duty of the Member State to notify State aid to the Commission before granting the aid. In this respect, the State aid analysis carried out by Spain in the recovery and resilience plan cannot be considered a State aid notification. In as far as Spain considers that a specific measure contained in the recovery and resilience plan entails de minimis aid or aid exempted from the notification requirement, it is the responsibility of Spain to ensure full compliance with the applicable rules. Measures in the plan should also be compatible with the EU’s international obligations, in particular under World Trade Organization rules. 4.Summary of the assessment of the plan 4.1.Comprehensive and adequately balanced response to the economic and social situation The Plan explains in detail how it addresses the six pillars of Article 3 of the Recovery and Resilience Facility Regulation, namely: (i) green transition, (ii) digital transformation, (iii) smart, sustainable and inclusive growth, (iv) social and territorial cohesion, (v) health and economic, social and institutional resilience, and (vi) policies for the next generation. Table 4.1 below summarises the coverage of each of the components in the Spanish RRP to one or more of the six pillars. Spain submitted its National Reform Programme on 30 April 2021. The information provided in the National Reform Programme is being considered and jointly assessed in this Staff Working Document together with the Recovery and Resilience Plan. Table 4.1. Coverage of the six pillars of the Facility by the Spanish RRP components Green transition Digital transformation Smart, sustainable & inclusive growth Social and territorial cohesion Health, and economic, social and institutional resilience Policies for the next generation 01. Sustainable urban mobility ● ○ ○ ○ 02. Renovation ● ● ● ○ 03. Agri-food and fisheries ● ○ ○ 04. Ecosystems and biodiversity ● ○ ○ ● 05. Coast and water resources ● ○ ○ ● 06. Sustainable long-distance mobility ● ○ ○ ○ 07. Renewable energy ● ○ ○ 08. Electricity infrastructure ● ● ○ 09. Hydrogen ● ○ 10. Just transition ● ○ ● 11. Public administration ○ ● ● ○ ● 12. Industrial policy ● ● ● ● 13. Support to SMEs ● ● ○ ● 14. Tourism ○ ● ● ● 15. Digital connectivity ● ● ● 16. Artificial Intelligence ● ● 17. Science, technology and innovation ○ ● ○ 18. Reform of health system ○ ● ○ 19. Digital skills ● ○ ● 20. Vocational training ○ ○ ○ ○ ● 21. Education ○ ○ ● 22. Care economy, equality and inclusion ● ● ● ○ 23. Labour market reform ○ ○ ● ○ 24. Cultural industry ○ ● 25. Audiovisual ○ ● 26. Sports ○ ○ ○ 27. Prevention of tax fraud ● 28. Tax system reform ● ● 29. Effective public spending ● 30. Pension system reform ● Key: “●” investments and reforms of the component significantly contribute to the pillar; “○” the component partially contributes to the pillar The Plan proposes an appropriate overall balance of reforms and investments addressing the six pillars, reflecting the plan’s total financial allocation as well as the challenges the country faces. The green and digital pillars contributions are very significant in terms of reforms and investments put forward. This reflects the substantial allocation foreseen in the plan for the green and digital transition (respectively, 39,7 % and 28,2%). Most components contribute to smart, inclusive and sustainable growth. Seventeen components contribute to the social and territorial cohesion in the ways described below. Eleven components support health, economic, social and institutional resilience. In addition, eight components support the policies for the next generation. Green transition The first ten components of Spain’s RRP focus on supporting the green transition, including biodiversity, with a total estimated cost of EUR 31,2 billion, which to a large extent contributes to the climate change objectives. This amount represents almost half of the total RRF allocation for Spain in the form of non-repayable financial support of EUR 69,5 billion. Of these EUR 31,2 billion, EUR 13,2 billion are allocated to sustainable mobility; EUR 6,8 billion earmarked to energy renovations and construction of buildings (an additional EUR 1 billion for energy renovation in public buildings under Component 11 Public administration, and over EUR 150 million to upgrade existing sports facilities); EUR 6,1 billion to infrastructure, renewables and green technologies (including hydrogen); EUR 2,7 billion to agri-food, fisheries, biodiversity and ecosystems; almost EUR 2,1 billion to water management and coastal protection; and EUR 300 million to the just transition. In addition, EUR 850 million are allocated to waste management and the circular economy in Component 12 (Industrial Policy). Certain measures in some other components also contribute to the green transition. The contribution of these measures to the green transition is explained in detail in Section 4.5. Digital transformation The Spanish RRP includes ten components that significantly contribute to the pillar of digital transformation. This is complemented by another eleven components that partly contribute to this pillar. Digital measures are included in the majority of the components of the Spanish plan reflecting the broad and cross-cutting nature of the envisaged digitalisation efforts. Digital transformation is expected to be one of the key drivers of growth and productivity in Spain during the coming years. The contribution of the different measures is explained in detail in Section 4.6 below. Smart, sustainable and inclusive growth Several measures spread across different components aim to strengthen Spain’s competitiveness and productivity, notably for SMEs, as well as to improve R&D and innovation. The competitiveness of SMEs and their digitalisation are supported by Component 13 (Support to SMEs) (EUR 4,9 billion). Several reforms seek to enhance the business environment, notably for the very high number of SMEs in Spain. The growth of SMEs is promoted through several regulatory reforms that aim to achieve better regulation, and through investment in entrepreneurship skills, capacity building and financial support. Specific actions are expected to support retail shops whic