(2)The 2020 country report for Spain was published on 26 February 2020. It assessed Spain’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019, the follow-up given to the recommendations adopted in previous years and Spain's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Spain is experiencing macroeconomic imbalances. High external and internal debt, both public and private, continued to constitute vulnerabilities, in a context of still high unemployment and had cross-border relevance.

(1)On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Spain as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

(3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

(4)Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

(5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact. The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

(6)Continued action is required to limit and control the spread of the pandemic, strengthen the resilience of the national health systems, mitigate the socio-economic consequences through supportive measures for business and households and to ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to get back to a normal functioning of our societies and economies and to sustainable growth, integrating inter alia the green transition and the digital transformation, and drawing all lessons from the crisis.

(7)The COVID-19 crisis has highlighted the flexibility that the single market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the single market from functioning normally must be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector, which include in particular improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies. They are key elements for developing broader crisis preparedness plans.

(8)The Union legislator has already amended the relevant legislative frameworks to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Spain is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

(9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across Spanish regions due to different specialisation patterns. This is the case, for example, for the regions that rely the most on tourism, such as those in the Mediterranean coast, Andalusia, or the Balearic Islands and the Canary Islands, where more than one fourth of jobs are linked to that sector. This entails a substantial risk of widening regional disparities within Spain. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

(10)On 1 May 2020, Spain submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

(11)Spain is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule.

(12)On 13 July 2018, the Council recommended Spain to ensure that the nominal growth rate of net primary government expenditure (3) does not exceed 0,6% in 2019, corresponding to an annual structural adjustment of 0,65% of GDP. The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing Spain’s compliance with the debt criterion in 2019.

(13)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 2,8% of GDP in 2019 to a deficit of 10,3% of GDP in 2020. After decreasing to 95,5% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 115,5% in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

(14)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Spain has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 3,2% of GDP. The quantification of the deficit-increasing measures broadly coincides with the Commission’s estimates, once the different treatment of the cost of automatic stabilisers is taken into account. The measures include strengthening health care services and providing income support to workers put on short-time work schemes. In addition, Spain has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses, which the 2020 Stability Programme estimates at 9,2% of GDP. Those measures in particular include loan guarantees (8,8% of GDP). Overall, the measures taken by Spain are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

(15)Based on the Commission 2020 spring forecast under unchanged policies, Spain’s general government balance is forecast at -10,1% of GDP in 2020 and -6,7% in 2021. The general government debt ratio is projected to reach 115,6% of GDP in 2020 and 113,7% in 2021.

(16)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Spain’s non-compliance with the debt rule in 2019 and the planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit and debt criteria as defined in the Treaty and in Regulation (EC) No 1467/1997 are not fulfilled.

(17)Measures taken to stop the spread of the virus are having an important effect on the economy and could result in a 9,4% loss of GDP this year. The impact on employment, while difficult to calculate at this stage, will also be sizeable. Around one million people have already lost their jobs since the onset of the crisis. The effect on employment is currently mitigated by the close to 3,5 million workers who have been enrolled in short-time work schemes (ERTEs), which have prevented so far immediate losses of employment. The consequences of the pandemic in Spain will be aggravated by the high share of employment in small and medium-sized enterprises (SMEs), the weight of sectors that are being particularly hit and are likely to experience a slower recovery, among which tourism and retail, and the high rate of temporary contracts among employees (26,3% in 2019). All these factors could lead to large employment losses and amplify the shock. According to the Commission’s forecast, the unemployment rate (which was 13,6% in February 2020), is expected to rise to 18,9% in 2020 and recover to 17% in 2021.

(18)The Spanish authorities have sought to mitigate the impact of the pandemic and of the containment period through various packages of measures that in total amount to EUR 145 billion. In their efforts to tackle the disease, the authorities have increased their expenditure on health and social services. They have also facilitated the use of ERTEs with a view to keep people in employment and support household’s income. Employees affected by an ERTE receive a benefit amounting to 70% of their social security contribution base, with a minimum and maximum limit (EUR 502 and EUR 1,402, respectively). The employment relationship remains intact during the duration of the ERTEs, which have been recently extended until 30 June 2020. Firms implementing ERTEs are exempted from having to pay a very large part of the social security contributions for workers covered by the scheme, provided they maintain their jobs for at least six months after the resumption of activities. These measures go hand in hand with specific aid for SMEs and self-employed workers, who constitute the backbone of the Spanish economy (deferral of tax payments, reductions of social security contributions and state guarantees), and are an attempt to help them avoid bankruptcy and quickly resume activity once the crisis is over. Measures have also been adopted to guarantee income support temporarily to non-standard workers who have no access to social security protection.

(19)The Spanish health system has been delivering good health outcomes despite the comparatively low level of investments. The outbreak of the COVID-19 pandemic has, however, put an unprecedented strain on the system and revealed its vulnerability to shocks. Immediate action is focusing on strengthening capacities in terms of health workers, critical medical products and infrastructure in order to save lives and restore health during the pandemic. Persons with disabilities and the elderly in residential care have been particularly exposed during the crisis. Their continued access to medical and social care, including emergency and intensive care services, needs to be ensured. Later on, efforts should concentrate on improving the resilience of the health system so that it can resume its optimal performance as quickly as possible and better cope with new shocks. The pandemic has revealed existing structural problems, some of which derive from certain shortfalls in investment in physical infrastructures and shortcomings in the recruitment and working conditions of health workers. There are regional disparities in terms of spending, physical resources and staff, and the coordination between different levels of government is not always effective. In the medium-term, healthcare delivery could better respond to the challenges of ageing, growing chronical conditions and disability. Primary care and the development of e-health have a central role to play in this regard. In the medium-term, it will be important to ensure that the likely decrease in resources due to the economic downturn does not affect people’s healthcare coverage and result in inequalities in access.

(20)Despite years of strong job creation, the Spanish labour market still recorded high levels of unemployment and labour market segmentation before the COVID-19 outbreak. Preliminary data point to a very significant increase in the level of unemployment in Spain as a result of the crisis, which will weigh on the already limited capacity of employment services to support workers and employers and on social services. In the medium term, the way to recovery should be paved by measures to support employment taken in consultation with social partners, such as gradually phasing-out short-time work schemes, reviewing the system of hiring incentives to better promote sustainable forms of employment, notably for young workers, as well as through flexibility in working conditions. Raising the share of students in science and digital technologies, making vocational education and training more attractive and ensuring flexible upskilling and reskilling opportunities could help meet the growing demand for the technical skills needed for the green and digital transitions that will accompany the recovery. More generally, improving educational and career guidance and providing adequate support to students with disadvantages and regions lagging behind could contribute to better educational outcomes. The success of measures that may be adopted with a view to achieving these objectives will strongly depend on taking the necessary time to build a broad and long-lasting social and political consensus around the reforms.

(21)The effects of the pandemic on the labour market have prompted a pressing need to support the income of households hit by the crisis. The facilitation of the use of short-time work schemes has been key in that endeavour. However, temporary workers with very short contracts, who constitute the bulk of the close to one million new unemployed and amongst which there are many young workers, are often not eligible for standard unemployment protection. Ensuring early on that all workers, including temporary workers and the self-employed, have access to adequate social protection and active labour market policies, is needed to support a sustainable recovery and social cohesion.

(22)The crisis will likely increase the high levels of poverty or social exclusion in Spain, especially among families with children. In 2019, Spain was the Member State with the lowest average of family benefits per child. Families with low-to-medium income are not entitled to the country’s strict child benefits, and tax deductions are of limited advantage to them. Social protection expenditure remains highly oriented towards older people, and the level of expenditure on pensions is set to increase significantly in the medium to long term, should the announced departures from the 2013 pension reform be made permanent and no adequate compensatory measures taken. The difficult economic and social context resulting from the pandemic instead calls for intergenerational solidarity in favour of the younger generations. Unemployment assistance for the long-term unemployed and workers not qualifying for contributory schemes is currently scattered across multiple schemes, resulting in low coverage. Existing regional minimum income schemes only reach 20% of their potential beneficiaries in the country, amid large regional disparities in terms of coverage, duration, access conditions and adequacy. In the current pressing context, a permanent national income guarantee scheme, with an estimated coverage of three million beneficiaries, is planned to be introduced swiftly to complement the existing regional minimum income schemes. Its impact on poverty-reduction and its sustainability in the short and medium-term cannot be assessed at this stage.