COMMISSION STAFF WORKING DOCUMENT Assessment of the 2013 national reform programme and stability programme for SPAIN Accompanying the document Recommendation for a Council Recommendation on Spain's 2013 national reform programme and delivering a Council Opinion on Spain's 2013 stability programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: Spain, banking system, budget deficit, economic growth, economic reform, economic situation, free competition, labour market, public expenditure, stability programme, structural adjustment

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 359 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2013 national reform programme and stability programme for  
SPAIN 

Accompanying the document 

Recommendation for a Council Recommendation 

on Spain's 2013 national reform programme and delivering a Council Opinion on 
Spain's 2013 stability programme for 2012-2016 

{COM(2013) 359 final} 

EN 

   EN 

 
 
 
 
  
 
CONTENTS 

Executive summary .................................................................................................................... 3 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

3.3 

3.4. 

3.5. 

4. 

5. 

Introduction .................................................................................................................. 5 

Economic developments and challenges...................................................................... 8 

Recent economic developments and outlook............................................................... 8 

Challenges .................................................................................................................... 9 

Assessment of the policy agenda ............................................................................... 13 

Fiscal policy and taxation........................................................................................... 13 

Financial sector .......................................................................................................... 21 

Labour market, education and social policies ............................................................ 23 

Structural measures promoting growth and competitiveness..................................... 28 

Modernisation of public administration ..................................................................... 35 

Overview table ........................................................................................................... 37 

Annex ......................................................................................................................... 42 

2 

 
 
 
 
EXECUTIVE SUMMARY 

Economic Outlook 

The  economic  situation  in  Spain  remains  challenging,  even  though  external  financing 
pressures have eased since summer 2012. The economy is forecast to remain in recession in 
2013 (with real GDP falling by 1.5%) as the negative drag from domestic demand continues 
to  prevail  over  the  positive  contribution  of  net  exports.  The  unemployment  rate  is  set  to 
stabilise around an already very high level of 27.2% at the beginning of 2013. Robust exports 
and falling imports have driven a major improvement in the current account balance, from a 
deficit of -10% of GDP in 2007 to a projected surplus of 1.6% of GDP in 2013.  

The  recession  and  the  shift  to  a  less  tax-rich  growth  pattern  have  complicated  the 
reduction  in  the  high  government  deficit,  while  public  debt  has  been  rising  fast.  The 
headline government deficit (net of capital transfers to banks) narrowed from 9% of GDP in 
2011  to 7.0% in 2012 (higher than originally targeted) and the Commission projects a deficit 
of 6.5% of GDP in 2013. Spain's planned adjustment path to reduce the deficit to below the 
3%  reference  value  by  2016  appears  realistic,  striking  a  balance  between  the  need  for 
ambitious  fiscal  consolidation  and  the  difficult  economic  situation.  Government  debt  has 
increased sharply from a low of about 36% of GDP in 2007 to 84% of GDP in 2012 and is 
forecast to approach 97% of GDP in 2014. 

Key Issues 

Overall, Spain continues to go through a deep structural adjustment following the build-
up  of  large  external  and  internal  imbalances  during  the  housing  and  credit  boom. 
Adjustment needs remain large, while structural rigidities and financing constraints have been 
hindering  a  faster  adaptation  of  the  real  economy  and  have  aggravated  the  employment 
situation. The 2013 in-depth review1 (IDR) pointed to the persistence of substantial fragilities 
and  risks  as  levels  of  domestic  and  external  debt  remain  high,  and  as  corroborated  by  the 
funding  stress  in  2012.  In  the  Communication  accompanying  the  IDRs,  the  Commission 
concluded that excessive imbalances exist in Spain.  

In  response  to  the  2012  country  specific  recommendations  (CSRs),  the  government 
announced a comprehensive reform plan covering fiscal, labour market, education and 
product  market  reforms,  as  well  as  measures  to  improve  the  business  environment. 
However,  progress  in  implementation  has  been  uneven  as  key  reforms,  such  as  the 
establishment  of  an  independent  fiscal  council,  a  law  on  market  unity  and  further 
liberalisation  of  professional  services,  have  been  delayed.  The  2013  national  reform 
programme  reinforces  and  provides  further  detail  on  content  and  timetable  of  the  reform 
agenda. Novel initiatives are foreseen to reduce the negative economic impact of indexation 
and to strengthen corporate governance. While the proposed reform agenda is comprehensive 
and  goes  in  the  right  direction,  Spain  should  adopt  and  swiftly  and  effectively  implement 
determined reforms so that they can start deploying the expected positive effects on growth 
and employment and support the correction of imbalances.  

1 http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/pdf/ocp134_en.pdf. 

3 

 
 
 
                                                 
The main challenge for Spain is to boost economic growth and employment and correct 
the excessive macroeconomic imbalances. Continued fiscal consolidation and stronger fiscal 
institutions  are  needed  to  ensure  sustainable  public  finances.  Completing  financial  sector 
repair  and  restructuring  is  paramount  to  support  the  real  economy.  Competitiveness  and 
export  capacity  need  to  be  further  improved,  while  competition  in  domestic  goods  and 
services  sectors  is  still  insufficient.  Most  crucially,  the  labour  market  situation  remains 
critical. Early school leaving and a vocational training system which is insufficiently tailored 
to market needs remain a problem. Poverty and social exclusion are on the rise.  

•  Public  finances:  The  fiscal  impact  of  the  crisis  and  projected  population  ageing 
compound each other and make fiscal sustainability a significant challenge. The 2012 
deficit target of 6.3% of GDP was missed in spite of large consolidation efforts, and 
while  the  Spanish  authorities'  plans  are  broadly  on  track  to  correct  the  excessive 
deficit  by  2016,  some  measures  are  not  sufficiently  specified.  The  2011  pension 
reform has not yielded sufficient savings. Reforms in public administration and public 
procurement  could  generate  further  savings,  in  particular  given  the  decentralised 
system government (with the Autonomous Communities accounting for about a third 
of total government expenditure). The independent fiscal council is to be set up during 
2013.  

•  Financial  sector:  The  financial  sector  adjustment  programme  is  on  track,  though 
credit  conditions  for  borrowers  –  especially  SMEs  –  remain  tight.  Households  and 
corporations remain exposed to very high debt levels (total private debt reached 211% 
of GDP as of 2012 Q4) and non-performing loans keep rising (10.5% of total loans in 
March  2013  excluding      assets  transferred  to  Sareb).  Meanwhile,  despite  the  fall  in 
house  prices  in  2012,  there  is  still  large  stock  of  unsold  houses  coupled  with  low 
demand, which means prices may not stabilise before 2014. 

long-term  unemployment  (44.5%  of 

•  Labour  market:  The  strength  of  exports  and  improvements  in  competitiveness  are 
not  yet  supporting  job  creation.  Unemployment  is  amongst  the  highest  in  the  EU, 
total  unemployment)  and  youth 
while 
unemployment  (55.7%)  are  on  the  rise.  Despite  the  first  notable  effects  of  the  2012 
labour market reform, there are still very high levels of temporary employment. The 
implementation  of  further  reforms  to  help  the  unemployed  back  to  work  has  lagged 
behind. Social problems are growing, with 27% of the population at risk of poverty or 
social  exclusion.  Early  school  leaving  (24.9%)  and  insufficient  use  of  vocational 
training remain a problem, as 35.2% of unemployed people lack formal qualifications.  

•  Product  and  service  markets:  It  is  taking  longer  than  envisaged  to  address 
weaknesses  in  the  business  environment,  such  as  barriers  to  doing  business,  and 
increase  decisively  competition  in  product  and  services  markets,  which,  are  holding 
back  growth  and  job  creation  and  keeping  prices  higher  for  consumer.  Reforms  are 
also  needed  in  the  electricity  and  transport  sectors,  while  more  needs  to  be  done  to 
strengthen research and innovation activities and encourage spill-overs to business.  

4 

 
 
1. 

INTRODUCTION 

In May 2012, the Commission proposed a set of country-specific recommendations (CSRs)2 
for  economic  and  structural  reforms  in  Spain.  On  the  basis  of  these  recommendations,  the 
Council  of  the  European  Union  adopted  eight  CSRs3  in  the  form  of  a  Council 
Recommendation.  These  CSRs  concerned  public  finances,  pension  reform,  restructuring  of 
the financial sector, tax policies, labour market, access to finance for small and medium-sized 
enterprises (SMEs), research and innovation, education and training, social inclusion and the 
functioning of product and services markets. This staff working document assesses the state 
of  implementation  of  the  2012  country-specific  recommendations,  identifies  current  policy 
challenges and, in this light, examines the policy plans adopted. 

The SWD also assesses policy measures against the background of the Commissionʼs Annual 
Growth Survey for 2013 (2013 AGS)4 and the second annual Alert Mechanism Report (2012 
AMR),  which  were  published  in  November  2012,  as  well  as  the  in-depth  review  (IDR) 
published in April 2013. The 2013 AGS sets out the Commissionʼs proposals for building the 
necessary  common  understanding  about  the  priorities  for  action  at  national  and  EU  level  in 
2013.  It  identifies  five  priorities  to  guide  Member  States  to  renewed  growth:  pursuing 
differentiated , growth-friendly fiscal consolidation; restoring normal lending to the economy; 
promoting growth and competitiveness for today and tomorrow; tackling unemployment and 
the social consequences of the crisis; and modernising public administration. The 2012 AMR 
served as an initial screening device to determine whether macroeconomic imbalances exist or 
risk emerging in Member States, and found positive signs that macro-economic imbalances in 
Europe  are  being  corrected.  To  ensure  that  a  complete  and  durable  rebalancing  is  achieved, 
Spain  and  12  other  Member  States  were  selected  for  a  review  of  developments  in  the 
accumulation  and  unwinding  of  imbalances.  The  2013  IDR  and  its  accompanying 
communication    pointed  to  the  persistence  of  risks  and  negative  economic  trends  linked  to 
macroeconomic imbalances. In the communication, the Commission concluded that it would 
consider at the end of May whether further steps are needed under the Excessive Imbalances 
Procedure on the basis of the assessment of the National Reform Programme and the stability 
programme.  

Against  this  background,  Spain  transmitted  its  National  Reform  Programme  (NRP)  and 
Stability  Programme  (SP)  on  30  April  2013.  The  programmes  provide  details  of  progress 
made since June 2012 and plans going forward, addressing  most of the challenges identified 
in  last  yearʼs  Staff  Working  Document,  and  broad  consistency  between  the  two  documents 
has  been  ensured.  The  national  reform  programme  confirms  Spainʼs  commitment  to 
addressing  shortcomings 
last  yearʼs  country-specific 
recommendations, the 2013 AGS and the 2013 IDR.  

identified  by 

the  areas 

in 

The programmes submitted went through a consultation process involving local and regional 
authorities in the areas of their competence and the most important stakeholders. 

2 http://ec.europa.eu/europe2020/pdf/nd/csr2012_spain_en.pdf 
3 http://register.consilium.europa.eu/pdf/en/12/st11/st11273.en12.pdf 
4 http://ec.europa.eu/europe2020/pdf/ags2013_en.pdf 

5 

 
 
 
 
                                                 
Overall assessment  

Spain has made some progress to address the 2012 Council Recommendation. Swift and full 
implementation of the reforms that have suffered delays and of the other measures in the NRP 
and SP will be critical to support the correction of macroeconomic imbalances.  

The  national  reform  programme  confirms  Spainʼs  current  strategies  and  provides  details  of 
new  plans  in  the  areas  of,  among  others,  entrepreneurship  and  competition  in  product  and 
service  markets,  active  labour  market  policies,  education  and  cooperation  between  different 
layers of public administration. The proposal for a law on de-indexation and the measures on 
corporate  governance  are  new  elements  in  the  NRP.  Overall,  the  policy  plans  submitted  by 
Spain  are  relevant  to  address  the  policy  challenges  facing  the  country,  but  need  to  be 
implemented without further delay, and, in some cases, need to be complemented by further 
action.  Moreover,  effective  implementation  and  regular  monitoring  of  the  impact  of  the 
reforms against their objectives is important to identify slippages and take corrective action in 
a timely manner. In particular, Spainʼs dismal unemployment performance calls for openness 
to  review  thoroughly  and,  possibly,  strengthen  past  reforms  in  the  light  of  the  forthcoming 
assessment of their effects. 

Concerning  public  finances,  the  fiscal  position  was  further  improved  in  2012  thanks  to  a 
strengthened  institutional  framework  and  better  budgetary  execution  control.  Nevertheless, 
the  2012  general  government  deficit  target  of  6.3  %  of  GDP  was  missed  (outcome:  7  %  of 
GDP, net of bank recapitalisation measures) as a result mainly of major revenue shortfalls and 
in  spite  of  large  consolidation  efforts.  The  implementation  of  the  new  Budgetary  Stability 
Law  implied  major  progress  in  2012  in  terms  of  timely  and  more  transparent  reporting  on 
budgetary  outcomes  at  sub-central  government  level,  although  there  is  scope  to  strengthen 
further  the  monitoring  instruments  envisaged.  Plans  for  setting  up  an  independent  fiscal 
council  have  been  delayed,  but  a  first  draft  law  was  approved  by  the  government  in  April 
2013. The 2013 stability programme confirms the authorities' commitment to advancing with 
fiscal  consolidation  over  the  medium-term.  The  programme  envisages  an  adjustment  path 
which  is  broadly  consistent  with  correcting  the  excessive  deficit  by  2016.  However,  the 
budgetary adjustment path is not sufficiently supported by measures, particularly towards the 
end of the programme period.  

The  deficit  in  the  social  security  system  is  widening  against  the  background  of  falling 
employment  and  rising  unemployment.  The  projected  reduction  in  age-related  public 
expenditure  through  the  2011  pension  reform  is  not  sufficient.  Activating  the  pension 
sustainability  factor  only  in  2027  would  place  the  major  burden  of  this  reform  on  future 
generations. Additional measures were adopted in March 2013 which curbed access to early 
retirement  schemes  and  to  partial  pensions  and  which  will  contribute  to  enhancing 
sustainability  in  the  medium  and  long  term.  Plans  to  legislate  the  sustainability  factor  are 
being advanced and a decision is to be taken by the end of 2013.  

A number of tax measures were adopted during 2012 to support fiscal consolidation. In line 
with  the  CSRs  of  2012,  there  was  some  rebalancing  of  the  relative  tax  burden  towards 
consumption  and  environmental  taxes,  and  a  reduction  in  the  tax-induced  bias  towards 
indebtedness  and  home  ownership.  Limited  fiscal  space  impeded  the  originally  planned 
reduction  in  employersʼ  social  security  contributions,  which  was  intended  to  deepen  the  tax 
shift. The 2013 NRP does not provide for additional major changes to the tax system, apart 
from some tax expenditure measures. 

6 

 
 
The  financial  sector  adjustment  programme  is  on  track.  In  particular,  the  necessary 
recapitalisation has been carried out, and the asset management company Sareb has been set 
up. The restructuring of banks, in accordance with decisions under state aid rules, will require 
continued attention in the coming years. Still, credit conditions for bank-dependent borrowers 
remain  tight,  notably  for  SMEs.  State-guaranteed  credit  lines  have  been  strengthened  and 
some initiatives to widen the financing options for firms have also been launched. In parallel, 
Spain  has  implemented  a  major  plan  to  pay  the  public  administrationʼs  commercial  debts 
(EUR 27.3 billion),  which has been extended to 2013 (EUR 2.6 billion).  

Available  data  suggest  that  the  2012  labour  market  reform  has  started  to  lead  to  greater 
internal flexibility, to some reduction in dismissal costs and to increasing wage moderation. 
However. progress appears more mixed as regards duality and the use of opt-out clauses. An 
official assessment of the reform against its stated objectives, with a view to stepping up its 
implementation where needed, was announced for July 2013 in the NRP. The national Youth 
Employment  and  Entrepreneurship  Strategy  2013-2016,  presented 
in  March  2013, 
incorporates  a  range  of  short-  and  longer-term  measures  intended  to  improve  employment 
opportunities for young people. Recently adopted measures should foster closer cooperation 
between national and regional public employment services (with the creation of a Single Job 
Portal) and between public employment services and private placement agencies, but remain 
to be made fully operational.  The implementation of reform measures in the field of active 
labour market policies (ALMPs) has lagged behind and actions to modernise and reinforce the 
public employment service itself are still needed.  

A  high  proportion  of  unemployed  people  without  formal  qualifications  (35.2%  in  Q4-2012) 
and the insufficient relevance of education and training to the labour market contribute to the 
high  youth  unemployment  rate.  Early  school  leaving,  although  decreasing,  continues  to 
represent  a  major  challenge,  and  vocational  training  remains  insufficiently  used.  The  NRP 
highlights the importance of a swift implementation of the reform of the educational system 
and improvements in the quality of education and training. Moreover, dual vocational training 
has been introduced and pilot projects have started in 2012, but other measures to be included 
in  the  draft  organic  law  on  quality  of  education  have  not  advanced.  Poverty  and  social 
exclusion keep increasing, mainly as a result of the labour market situation, high household 
debt levels and the limited effectiveness of the social protection system to respond to growing 
needs. 

In  the  area  of  competition  in  product  and  service  markets,  progress  is  taking  longer  than 
envisaged  in  the  September  2012  reform  plan,  in  spite  of  the  fact  that  weaknesses  in  the 
business environment (e.g. the segmentation of Spainʼs domestic market and entry barriers in 
services) also hold back job creation. The first draft law (anteproyecto de ley) on market unity 
was  adopted  by  the  government  in  January  2013  and  its  final  approval  by  Parliament  is 
foreseen by end-2013. The approval of the draft law on professional services is scheduled for 
the  end  of  the  first  half  of  2013  only.  The  law  to  support  entrepreneurs  and  their 
internationalisation  is  expected  to  be  approved  by  Parliament  before  the  end  of  2013.  The 
electricity  tariff  deficit,  which  represents  a  potentially  sizeable  contingent  liability  for  the 
budget and non-negligible macroeconomic risks, has not yet been tackled conclusively. The 
2013 NRP announces a draft law further reforming the electricity sector by the end of June 
2013. The 2013 NRP does not set out a comprehensive response to the existing challenges in 
the transport sector. 

7 

 
 
The functioning of the public administration  could be  streamlined. While progress has been 
made on coordination between the various public administrations, with the presentation by the 
government of draft legislation on market unity and on local administration reform, efforts in 
the  field  of  public  procurement  policy  could  be  stepped  up,  inter  alia  to contribute  to  fiscal 
savings. Reforms to improve the efficiency of the judicial system are also ongoing.  

2. 

ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1.  Recent economic developments and outlook 

Recent economic developments  

The  rebalancing  of  the  Spanish  economy  is  causing  a  deep  contraction  of  domestic 
demand,  which  is  only  partially  offset  by  external  demand.  Weak  domestic  demand 
resulted in a recession in 2012, with real GDP falling by 1.4% after some positive growth in 
2011  (0.4%).  The  most  important  reasons  for  the  weakness  of  domestic  demand  were  the 
continuing  adjustment  in  the  construction  sector,  deleveraging  by  households  and  non-
financial  corporations,  tight  financing  conditions,  fiscal  consolidation,  and  the  high  level  of 
unemployment.  

The  recession  was  accompanied  by  further  massive  employment  destruction.  So  far, 
since 2007, around 3.6 million jobs have been lost. Employment contraction further gathered 
pace in 2012, as employment fell by 4.6%. 5 The job losses are the consequence partly of the 
depressed  cyclical  position,  but  also  of  structural  adjustment,  notably  the  sustained 
downsizing of the construction sector, skill mismatches and the sluggish adjustment of wages. 
In  2012,  wage  moderation  markedly  intensified,  partly  fostered  by  the  2012  labour  market 
reform and public sector wage cuts. The unemployment rate surged in 2012 and early 2013, 
reaching  27.2%  in  the  first  quarter  of  2013,  more  than  6.2  million  people,  while  the  active 
population has been falling (by 1% in 2013 (Q1), year-on-year growth rate).  

Although  export  growth  decelerated,  Spain  continued  to  gain  export  market  share  in 
2012.  New  products  and  markets  helped  to  sustain  export  performance.  The  loss  of 
momentum  of  exports  was  more  than  offset  by  a  deep  contraction  of  imports,  as  a 
consequence  of  weak  domestic  demand.  The  result  was  a  significant  improvement  in  the 
current account, leading to a small current account deficit of 0.8% of GDP for 2012, despite 
the considerable drags from the energy trade balance and income payments. 

The 2013 Commission spring forecast expects a further 1.5 % fall in real GDP in 2013.   
The  drivers  of  the  contraction  in  2012  are  expected  to  persist  in  2013,  although  with  a 
diminishing intensity, and GDP is expected to bottom up towards the end of the year.   While 
domestic demand will continue to be a drag on growth, exports are projected to grow faster, in 
line with higher growth of export markets and further market share gains. An additional fall in 
unit  labour  costs,  due  to  significant  growth  of  labour  productivity  and  moderated  wage 
growth,  will  support  the  recovery  in  cost  competitiveness.  As  a  result,  the  external 
rebalancing of the economy is expected to advance in 2013.  

5 Source: National Statistics Institute, Labour Force Survey, Q1-2013. 

8 

 
 
 
                                                 
Additional employment destruction is expected in 2013, although to a lesser extent than 
in 2012. The labour market reform allowed firms to use alternative adjustment mechanisms to 
job destruction, and wages have become more sensitive to the cyclical position. These effects 
will not, however, be sufficient to stem a further increase in the unemployment rate this year 
given that activity levels are falling.  

The  macroeconomic  scenario  underlying  the  NRP  and  the  SP  is  similar  to  the 
Commission  servicesʼ  spring  forecast.  For  2013,  the  positive  contribution  of  net  external 
demand (2.4%) and the negative contribution of domestic demand (-3.7%) are comparable to 
the  outlook  in  the  Commissionʼs  2013  spring  forecast.  The  stability  programme  forecasts 
economic  growth  of  0.5%  in  2014,  0.9%  in  2015  and  1.3%  in  2016.  The  path  of  general 
government deficits after 2013 is more favourable in the Spanish outlook, which, contrary to 
the Commissionʼs spring forecast, includes the governmentʼs fiscal consolidation plans.   

Despite the difficulties of pinpointing and quantifying the shocks represented by the reforms, 
the NRP includes estimates of their macroeconomic impact. According to these estimates, the 
reforms will have a significant impact on growth and employment in the short- term, ane even 
more  so  in  the  long-  term.  Among  the  estimates  provided,  the  impact  of  the  labour  market 
reform and of unifying the domestic market are of special importance, with a significant effect 
on GDP in the long run, estimated at 4.5 % and 1.5 %, respectively. 

2.2.  Challenges  

The  economic  situation  in  Spain  remains  challenging  even  though  external  financing 
pressures  have  eased  since  summer  2012.  The  economy  is  still  going  through  a  deep 
structural adjustment following the build-up of large external and internal imbalances during 
the  housing  and  credit  boom.  House  prices  are  still  falling  and  the  construction  sector  is 
shrinking. Households and companies are rebuilding their balance sheets. The financial sector 
is  undergoing  thorough  restructuring.  Faltering  domestic  demand  is  pushing  firms  to  boost 
productivity and expand their exports. Part of the past loss of cost competitiveness has been 
reversed, although this is partly through the impact of massive labour shedding on apparent 
labour productivity. Robust exports and falling imports have driven a major improvement in 
the current account balance, from a deficit of -10% of GDP in 2007 to -0.8% of GDP in 2012 
(and  a  projected  surplus  in  2013).  However,  part  of  this  adjustment  seems  to  be  cyclical  in 
nature.  In  order  to  ensure  a  steady  decline  in  the  still  very  large  net  external  liabilities,  and 
taking into account the drags from the energy trade and income deficits, further advances in 
competitiveness would be necessary. Structural rigidities and financing constraints have been 
hindering  a  faster  adaptation  of  the  real  economy  to  post-bubble  conditions.  Acute  funding 
stress  during  2012  showed  that  an  adjustment  process  of  this  size  brings  with  it  significant 
risks  for  growth  and  financial  stability.  Negative  feedback  loops  between  a  protracted 
economic recession, ongoing deleveraging and volatile market financing conditions remain a 
tangible threat that requires a comprehensive policy response. 

Households  and  corporations  remain  exposed  to  very  high  debt  levels  and  non-
performing loans keep rising, despite efforts to deleverage. The correction in the housing 
market is still ongoing. Despite the acceleration of the fall in house prices witnessed in 2012, 
the  still  large  stock  of  unsold  houses  together  with  subdued  demand  conditions  (via  lower 
disposable  income,  tighter  financing  conditions  and  high  uncertainty)  imply  that  a 
stabilisation  of  house  prices  may  not  occur  before  2014,  notwithstanding  considerable 
variation in housing market conditions across regions.  

9 

 
 
 
In spite of improvements in wholesale financial markets, financing conditions for bank-
dependent borrowers remain tight in the aftermath of the crisis. Sovereign spreads have 
fallen  and  corporate  issuance  on  international  financial  markets  has  resumed.  The  financial 
sector adjustment programme for Spain6 has reinforced the stability of the banking sector and 
hence is setting the foundations for banks to provide adequate financing to the households and 
companies.  While  the  observed  fall  in  lending  is  consistent  with  the  need  for  deleveraging, 
indicators of the availability and cost of financing point to tight financing conditions for some 
categories  of  borrowers,  notably  SMEs.  The  impact  of  credit  constraints  on  SMEs  is 
intensified by the scarcity of alternative sources of financing, such as venture capital, business 
angels, equity markets and other equity funding.  Facilitating access to finance throughout the 
firmʼs  life-cycle  would  help  job  creation  and  support  the  growth  and  internationalisation  of 
businesses. 

The  fiscal  impact  of  the  crisis  and  of  projected  demographic  developments  compound 
each  other  and  make  fiscal  sustainability  a  significant  challenge.  The  high  structural 
primary  deficit  and  substantial  increases  in  gross  public  debt  observed  in  the  wake  of  the 
crisis  are  symptoms  of  fiscal  stress.  In  the  medium  and  long  term,  Spain  faces  population 
ageing, which will  impact public finances due to higher spending on pensions, healthcare and 
long-term  care.  The  reforms  already  introduced  will  moderate  the  increase  in  age-related 
expenditure.  Gradual  improvements  in  the  structural  primary  balance  and  further  reforms 
containing  age-related  expenditure  growth  are  necessary  to  maintain  the  sustainability  of 
public finances in the long term and to ensure the adequacy of pensions. 

The taxation system can contribute to the rebalancing of the economy. Even after the tax 
measures  taken  to  support  fiscal  consolidation,  Spain  has  a  relatively  low  tax-to-GDP  ratio. 
The ratio has been falling since the start of the crisis, partly as a consequence of the shift in 
the  composition  of  activity  towards  exports.  The  tax  system  can  continue  to  support  both 
fiscal consolidation and economic adjustment by keeping the course of shifting taxation away 
from  productive  factors  towards  consumption  and  environmental  taxes,  scaling  down  tax 
expenditures and other possible distortive measures, closing loopholes that and fighting fraud, 
so as to provide a level-playing-field for companies.  

Regaining competitiveness and boosting employment remain key challenges. The strength 
of  exports  and  the  improvement  of  relative  cost  competitiveness  indicators  are  positive 
developments  but  not  yet  sufficient  to  support  the  growth  of  activity  and  employment. 
Improvements  in  structural  competitiveness  through  more  efficient  resource  allocation  and 
firm-level knowledge-based productivity growth are needed to consolidate these gains. Swift 
completion  and 
the  structural  reform  agenda  will  help  regain 
competitiveness,  in  particular  through  a  more  efficient  public  administration,  stronger 
competition in domestic services and product markets, further measures in the labour market, 
improvement  in  the  business  environment  (also  by  significantly  reducing  and  shortening 
licencing procedures, including for industrial activities), support to research and innovation, 
the development of market-relevant human capital and skills, and adequate access to finance.   

implementation  of 

6 http://ec.europa.eu/economy_finance/assistance_eu_ms/spain/index_en.htm. 

10 

 
 
 
 
                                                 
The  labour  market  situation  remains  critical.  Skills  mismatches,  lack  of  skills  and 
qualifications, the fall in domestic demand and insufficient job creation, among other factors, 
have contributed to the rise in unemployment up to 27.2% at the beginning of 2013 (the youth 
unemployment rate was 55.7 %; long-term unemployment has more than doubled since 2008 
and  accounts  for  44.5  %).  The  fall  in  employment  has  especially  affected  labour-intensive 
sectors  (such  as  construction  and  the  public  sector),  thus  supporting  apparent  labour 
productivity  growth  and  the  further  fall  in  unit  labour  costs  (-3.4%  in  2012).  In  spite  of  a 
considerable  increase  in  female  labour  market  participation  during  the  last  decade,  women 
still show very low employment rates. The active population has started to shrink and, despite 
the changes brought by the 2012 labour market reform, the labour market remains segmented, 
with  still  very  high  levels  of  temporary  employment.  Wages,  partly  following  the  reform, 
have  started  to  respond  to  the  slack  in  the  labour  market.  Unemployment  creates  social 
hardship  and  constrains  the  capacity  of  households  to  meet  debt  repayment  obligations.  A 
prolonged period of high unemployment could dampen potential output growth via hysteresis 
effects.  

Spain has moved further away from its target of reducing the number of people at risk 
of  poverty  and/or  social  exclusion.  On  the  contrary,  the  latter  rose  by  0.7  million  in  2011 
alone, on top of the 1.1 million increase in 2010. Meanwhile, the social protection system has 
been intensely challenged by the recession. 

There is a need to reinforce the contribution of the education and training system at all 
levels  to  human  capital  formation.  Major  challenges  in  the  education  system  are  the 
transition from education and training to the labour  market, a persistently high rate of early 
leavers from education and training (24.9 %7 in 2012) and insufficient tailoring of skills and 
capabilities to market needs. Some 29 % of 25-29 year-olds in Spain are not in employment, 
education or training, and vocational training remains insufficiently used.  

Lasting rebalancing  of the economy requires well-functioning and competitive  product 
and service markets. The considerable inertia of consumer prices, despite major falls in unit 
labour costs, may partly reflect ongoing corporate balance sheet repair but may also indicate a 
lack  of  competition  in  certain  product  and  service  markets.  Barriers  to  competition  prevent 
more  productive  firms  from  growing  and  gaining  market  shares  and  hold  back  innovation. 
Weaknesses in the business environment (e.g. segmentation of Spainʼs domestic market, entry 
barriers in servicesʼ industries, a lack of efficiency in the judicial system) also reduce market 
contestability  and  hold  back  job  creation.  As  regards  the  energy  sector,  the  potentially 
sizeable  contingent  liability  for  the  budget  implied  by  the  electricity  tariff  deficit  remains  a 
non-negligible macroeconomic risk. The extensive network of transport infrastructure entails 
high maintenance and renewal costs, and low traffic flows often do not cover operating costs 
of infrastructure. 

These  interrelated  and  complex  challenges  require  a  comprehensive  and  ambitious 
policy  response.  This  response  should  centre  on  pressing  competitiveness-  and  growth-
enhancing reforms of product and labour markets and of the public administration. 

7 Estimated, EUROSTAT. 

11 

 
 
 
                                                 
Box 1. — Summary of the 2013 in-depth review (IDR) under the Macroeconomic 
Imbalance Procedure (MIP) 

The  2013  IDR  takes  a  broad  view  of  the  Spanish  economy  in  line  with  the  scope  of  the 
surveillance  under  the  Macroeconomic  Imbalance  Procedure  (MIP).  The  main  observations 
and findings from of the analysis are that the risks and negative economic trends associated 
linked  to  macroeconomic  imbalances,  as  identified  in  the  2012  IDR,  are  still  powerful  and 
have partly materialised: 

•  Negative  feedback  loops  between  a  protracted  economic  recession,  ongoing 

deleveraging and volatile market financing conditions remain a tangible threat.  

•  The  unemployment  rate  is  at  a  record  high  and  projected  to  rise  further.  The  share 
proportion  of  long-term  unemployment  is  increasing,  and  with  it  the  probability  of 
hysteresis effects that would lower the growth potential of the economy. Wages have 
only belatedly and gradually started to respond to the slack in the labour market, partly 
in reaction to the 2012 reform of the labour market.  

•  The  private  sector  faces  strong  pressures  to  deleverage.  Despite  a  significant 
adjustment in terms of credit flows, private- sector debt remains particularly elevated 
high  and  non-performing  loans  are  set  to  increase  further.  Falling  house  prices  and 
rising unemployment are weakening household capacity to repay debt.  

•  External debt level remains close to its historical peak and large net external liabilities 
increase  the  vulnerability  of  the  Spanish  economy  to  external  financial  shocks. 
Notwithstanding  the  sizeable  improvements  in  the  current  account  balance,  further 
competitiveness gains will be needed to underpin the dynamism of exports and import 
substitution, and thereby bring about a significant reduction of net external debt over 
time.  

•  High  and  fast-  rising  general  government  debt  has  been  the  flip  side  of  the  ongoing 
adjustments  in  the  private  sector.  The  full  unwinding  of  macroeconomic  imbalances 
also requires that the negative impact on public finances is to be corrected as well. 

The  IDR  also  discusses  the  policy  challenges  stemming  from  these  imbalances.  The 
interrelated nature of the imbalances requires a comprehensive and ambitious policy response. 
Notwithstanding  the  measures  already  adopted  or  proposed,  a  number  of  areas  can  be 
considered for further reform, including inter alia deepening the structural reform agenda to 
open up product and factor markets, grounding fiscal consolidation on structural measures and 
reinforcing  the  institutional  framework,  further  reviewing  the  tax  system  to  enhance  its 
growth-friendliness and to ensure that it supports the internal and external rebalancing of the 
economy,  strengthening  the  business  environment  as  well  as  deepening  and  complementing 
the labour market reform. 

12 

 
 
 
 
3. 

ASSESSMENT OF THE POLICY AGENDA  

3.1. 

Fiscal policy and taxation  

Budgetary developments and debt dynamics  

The  main  goal  of  the  medium-term  budgetary  strategy  outlined  in  the  stability 
programme  is  to  bring  the  budget  deficit  below  the  3%  reference  value  by  2016.  The 
stability programme provides for meeting the medium-term objective (MTO), which remains 
a balanced budgetary position in structural terms, by 2018, which is beyond the programme 
horizon. The MTO more than adequately reflects the requirements of the Stability and Growth 
Pact.  

Additional  consolidation  measures  in  combination  with  a  strengthened  institutional 
framework  and  budgetary  execution  control  led  to  a  further  improvement  of  the 
underlying fiscal position in 2012. The general government deficit net of capital transfers to 
banks, which are considered as one-off operations, narrowed from 8.9 % of GDP in 2011 to 
7.0  %  in  2012.  This  exceeds  the  revised  government  and  EDP  target  of  6.3%  of  GDP.  By 
level  of  government,  the  main  consolidation  effort  was  achieved  at  the  regional  and  local 
level, with the regions as a whole missing the deficit target of 1.5% of GDP by slightly more 
than  0.2  pps.8  In  contrast,  the  social  security  sector  balance  deteriorated  by  around  1  pp, 
resulting in a deficit of almost 1 % of GDP. The deviation from the general government target 
was  linked  to  a  combination  of  weaker-than-expected  revenues  (taking  into  account  the 
impact  of  discretionary  measures  and  the  base  effect)  and  some  expenditure  overruns, 
including  higher  intermediate  consumption  and  social  transfers.  The  less  tax-rich  growth 
composition  and  a  stronger-than-expected  deterioration  in  the  labour  market  implied  major 
revenue shortfalls as well as higher social expenditure.  

For 2013, the stability programme aims at achieving a general government deficit of 6.3 
%  of  GDP,  compared  with  a  target  of  4.5  %  originally  set  in  the  July  2012  EDP 
recommendation  (Box  2).  This  revision  reflects  the  worse  starting  position  in  2012  and  a 
downward adjustment of the macroeconomic scenario. The planned narrowing of the deficit 
in 2013 will be mainly revenue-driven, as a result of higher tax revenue due to the expected 
full-year effect of the increase in VAT in September 2012 and hikes in excise duties. On the 
expenditure side, savings in compensation of employees, intermediate consumption, and gross 
fixed  capital  formation  will  be  largely  offset  by  higher  interest  expenditure  and  social 
spending.  In  total,  the  consolidation  in  the  programme  relies  on  adopted  discretionary 
measures with a budgetary impact estimated by the government at 3.6 % of GDP. In its 2013 
spring forecast, the Commission projects a deficit of 6.5 % of GDP. The small difference is 
largely explained by a slightly lower growth forecast and the fact that the programme assumes 
an additional impact of measures of about 0.2-0.3 pp, which are not clearly specified in the 
programme. 

The  stability  programme  confirms  the  authorities'  commitment  to  advance  with  fiscal 
consolidation  over  the  medium  term.  The  headline  deficit  is  expected  to  fall  to  5.5  %  of 
GDP in 2014 and to be reduced to 2.7 % of GDP in 2016. The fiscal consolidation plan (net of 
bank  recapitalisations  in  2012)  is  back-loaded,  with  most  of  the  fiscal  adjustment  to  be 

8 For a number of regions, the slippage was larger. 

13 

 
 
                                                 
delivered in 2015 and 2016 in terms of the headline, primary, and structural balances, which 
is appropriate given the current macroeconomic environment. The current programme targets 
differ  significantly  from  those  in  the  previous  update,  reflecting  a  substantial  downward 
revision  of  the  underlying  macroeconomic  and  budgetary  projections.  According  to  the 
programme,  the  consolidation  would  be  mainly  expenditure-based  from  2014  onwards.  The 
expenditure-to-GDP ratio is projected to fall by 3.7 % of GDP between 2012 and 2016 while 
the revenue ratio is expected to increase by 0.7 % of GDP. The planned expenditure restraint 
mainly  falls  in  the  areas  of  compensation  of  employees  and  intermediate  consumption  and 
less  in  social  payments  and  gross  fixed  capital  formation.  The  central  government  plans  to 
reduce its deficit by 2.1 pps of GDP between 2012 and 2016: the regional governments will 
have to deliver a deficit reduction of 1.6 pps of GDP, and social security a reduction of 0.5 pp 
of GDP.  

The  envisaged  budgetary  adjustment  is  not  sufficiently  supported  by  measures  in  the 
programme,  particularly  towards  the  end  of  the  programme  period  (Box  2).  For  2014, 
the  stability  programme  indicates  an  additional  consolidation  of  1  pp  of  GDP  on  the 
expenditure  side  partly  offset  by  a  drop  in  the  revenue  ratio  (0.2  pp)  due  to  lower  social 
security contributions. According to the programme, the consolidation will be underpinned by 
the extension of certain temporary revenue measures taken in previous years, such as changes 
to the corporate and personal income taxation, which were supposed to expire in 2014, and by 
(still  to  be  specified)  revenue  measures  at  regional  level.  On  the  expenditure  side,  the  main 
discretionary measures with an incremental impact in 2014 are the continued freeze in public 
sector hiring, various measures restricting early or partial retirement and unspecified savings 
at regional level and under the local administration reform, which remain to be adopted. For 
2015, the programme states that the planned budgetary adjustment requires measures of 1.5-
1.7  %  of  GDP,  whereas  measures  of  only  1.3  %  of  GDP  are  presented.  Moreover,  the 
programme  refers  to  future  measures  in  the  field  of  social  security  that  are  expected  to  add 
0.2-0.3  pp  in  2014-15,  which,  however,  are  not  specified.  The  main  measures  for  2015 
presented  in  the  programme  concern  planned  savings  at  regional  level  and  further  savings 
from the local administration reform. For 2016 the programme does not specify any measures 
necessary to underpin the achievement of the target.  

There are some downside risks to the deficit adjustment path presented in the stability 
programme.  The  source  of  additional  regional  revenues  from  2014  onwards  is  not 
sufficiently  specified  and  previously  introduced  temporary  measures  are  extended  only  to 
2014. In addition, the programme  announces a number of deficit-increasing tax expenditure 
measures  in  the  area  of  corporate  taxation  effective  as  from  2014  that  risk  eroding  the  tax 
base. For 2016, the programme does not present any measures, and this could jeopardise the 
achievement  of  the  proposed  deficit  target.  The  planned  savings  from  the  2014  local 
government reform are subject to significant implementation risks since the draft law has not 
yet  been  submitted  to  Parliament.  Moreover,  maintaining  the  public  sector  pay  and  hiring 
freeze  may  prove  increasingly  difficult  the  longer  it  has  been  in  place.  Other  risks  to 
budgetary strategy are larger deficits in the social security system (if employment growth falls 
short  of  expectations  and  pensions  expenditure  proves  more  difficult  to  contain)  and  the 
greater sensitivity of revenues to the on-going structural adjustment. Fully implementing the 
reforms already adopted with regard to the pension system and reaching an agreement on the 
sustainability factor, including de-indexation of pensions, would mitigate the risk of shortfalls 
in  the  social  security  system.  Moreover,  there  is  uncertainty  regarding  macroeconomic 
developments,  given  the  uncertainties  surrounding  the  economic  and  financial  situation  and 

14 

 
 
the  need  to  correct  excessive  macroeconomic  imbalances.  A  further  risk  stems  from 
contingent liabilities linked with asset protection schemes/guarantees.  

The adjustment path presented in the programme is realistic, striking a balance between 
ambitious  fiscal  consolidation  and  the  difficult  economic  situation.  In  terms  of  the 
structural  balance,9  the  programme  foresees  an  improvement  in  the  (recalculated)  structural 
deficit from 5.5 % of GDP in 2012 to 4.2 % of GDP in 2013 and, thereafter, a fall to 2.1 % of 
GDP in 2016. In 2014, the effort is slightly below 0.5 pp. The overall consolidation implies a 
cumulative structural fiscal effort of 3.4 pps. of GDP over the entire programme period. The 
programme does not foresee the achievement of the MTO within the programme period. The 
Commissionʼs 2013 spring forecast projects the structural deficit to be only slightly higher in 
2013  and  1¾%  of  GDP  higher  than  the  programme  target  in  2014  (based  on  a  no-policy-
change  assumption).  For  the  period  after  the  correction  of  the  excessive  deficit,  the 
programme  foresees  adequate  progress  towards  achieving  the  MTO.  According  to  the 
programme,  the  structural  deficit  decreases  by  1.2  pps  in  2017  and  turns  into  a  structural 
surplus in 2018 with further improvement in 2019.  

The general government debt-to-GDP ratio has been on an upward path since reaching a low 
of about 36% of GDP in 2007. In 2012, it rose further to exceed 84 % of GDP. The debt ratio 
is projected to continue to increase over the programme period, peaking at close to 100 % in 
2016, well above the Treaty reference value in all years. This increase in debt is mainly driven 
by high interest payments and to a lesser extent by the dynamics in the primary deficit, which 
is expected to turn into a surplus in 2016. Stock-flow adjustments contribute around 1 pps of 
GDP  on  average  over  2013-16.  The  trend  in  the  debt  ratio  may  be  more  unfavourable  than 
projected  in  the  programme  if  risks  related  to  the  budgetary  targets  materialise.  The 
Commissionʼs 2013 spring forecast projects a similar trend in the public debt, based on a no-
policy-change scenario.  

Box 2. Main measures 

After raising a number of taxes in 2012-13, such as personal and corporate income taxes and 
VAT, the focus of the measures presented in the programme is more clearly tilted towards 
the  expenditure  side  in  the  latter  years  of  the  programme.  Notably,  the  programme  relies 
heavily  on  the  hiring  freeze  and  continued  expenditure  restraint  at  regional  and  local 
government  level.  The  reform  of  local  government  and  other  savings  at  local  level  are 
expected  to  yield  increasing  savings,  reaching  about  ½  pp.  of  GDP  in  2015.  This  item  is 
subject to substantial implementation risk, as the local government reform has not yet been 
submitted  to  Parliament.  Moreover,  neither  revenue  nor  expenditure  measures  at  regional 
level as from 2014 are well specified and could thus be subject to significant risk. With the 
previously implemented hikes in personal income tax being extended only to 2014, there is a 
risk of a negative budgetary effect in 2015. The programme does not present any measures 
for 2016.  

Main budgetary measures 

9  

Cyclically adjusted balance net of one-off and temporary measures, recalculated by the Commission on 
the  basis  of  the  information  provided  in  the  programme,  using  the  commonly  agreed  methodology. 
These estimates have to be interpreted with great caution given the major uncertainties surrounding the 
methodological  estimation  of  potential  growth  and  output  gaps  in  an  economy  like  Spain,  facing 
profound structural transformations. 

15 

 
 
                                                 
Revenue 

Expenditure 

2012 

•  Income tax and taxes on non-residents 

(0.3 % of GDP) 

•  Corporate income tax (0.4 % of GDP) 
•  Tax amnesty and measures combatting 

fraud (0.1 % of GDP) 
•  VAT (0.1 % of GDP) 
•  Property tax (0.1 % of GDP) 
•  Revenue measures at regional level (0.4 

•  Public employment (0.5 % of GDP) 
•  Employment policies (0.1 % of GDP) 
•  Regional measures, excl. public 

employment measures (0.9 % of GDP) 
•  Local government reform and adjustment 

plans (0.1 % of GDP) 

•  Other, incl. reforms of regional government 

(0.8 % of GDP) 

% of GDP) 

•  Fight against social security fraud (0.2 

% of GDP) 

2013 

•  Income tax and taxes on non-residents 

(0.3 % of GDP) 

•  Environmental taxes (0.2 % of GDP) 
•  VAT (0.8 % of GDP) 
•  Excise duties (0.2 % of GDP) 
•  Revenue measures at regional level (0.3 

% of GDP) 

•  Public employment (-0.2 % of GDP) 
•  Employment policies (0.4 % of GDP) 
•  Long-term care (0.1 % of GDP) 
•  Regional measures, excl. public 

employment measures (0.6 % of GDP) 
•  Local government reform and adjustment 

plans (0.2 % of GDP) 

•  Social contributions (0.2 % of GDP) 

•  Other, incl. reforms of regional government 

(0.4 % of GDP) 

2014 

•  Corporate income tax (0.3 % of GDP) 
•  Measures combatting fraud (0.1 % of 

GDP) 

•  Revenue measures at regional level (0.2 

% of GDP) 

•  Public employment (0.2 % of GDP) 
•  Long-term care (0.1 % of GDP) 
•  Regional measures, excl. public 

employment measures (0.2 % of GDP) 
•  Local government reform and adjustment 

plans (0.3 % of GDP) 

•  Other, incl. reforms of regional government 

(0.1 % of GDP) 

•  Social security (0.1 % of GDP) 

2015 

•  Corporate income tax (-0.1 % of GDP) 
•  VAT (0.1 % of GDP) 
•  Revenue measures at regional level (0.2 

% of GDP) 

•  Public employment (0.1 % of GDP) 
•  Regional measures, excl. public 

employment measures (0.2 % of GDP) 
•  Local government reform and adjustment 

plans (0.5 % of GDP) 

•  Other, incl. reforms of regional government 

(0.1 % of GDP) 

•  Social security (0.1 % of GDP) 

16 

 
 
 
 
Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the 
national authorities. A plus sign implies that revenue / expenditure increases / decreases as a 
consequence of this measure.  

Among macro-structural  measures affecting potential growth, the main measures are the 
successive labour market reforms. A series of labour market reforms in 2010 and 2011 and 
again  in  February  2012  aimed  to  reduce  labour  market  segmentation  and  to  make  the 
collective bargaining system more flexible (see Section 3.3). 

Box 3. Excessive deficit procedure for Spain 

On 27 April 2009, the Council decided that an excessive deficit existed in Spain. The most 
recent  Council  Recommendation  under  Article 126(7)  TFEU  was  adopted  on  10  July  2012. 
The Council recommended that Spain puts an end to the present excessive deficit situation by 
2014. Specifically, in order to bring the headline government deficit below the 3 % of GDP 
reference  value  by  2014  the  Spanish  authorities  were  recommended  to  deliver  an 
improvement of the structural balance of 2.7 % of GDP in 2012, 2.5 % of GDP in 2013, and 
1.9 % of GDP in 2014, based on the Commissionʼs update of the 2012 spring forecast. The 
headline deficit targets were 6.3 % of GDP for 2012, 4.5 % of GDP for 2013, and 2.8 % of 
GDP  in  2014.  Spain  was  also  recommended  to  (a)  implement  the  measures  adopted  in  the 
2012  budget  and  in  the  Autonomous  Communitiesʼ  rebalancing  plans;  (b)  adopt  the 
announced multi-annual budget plan for 2013-14 by end of July 2012; (c) adopt without delay 
additional measures in 2012 to ensure the fulfilment of the budgetary plans for 2012; (d) stand 
ready to adopt further measures should risks to the budgetary plans materialise and accelerate 
the  reduction  of  the  deficit  in  2013  and  2014  if  economic  or  budgetary  conditions  turn  out 
better than currently expected; (e) strictly apply the new provisions of the Budgetary Stability 
Law regarding transparency and control of budget execution; (f) to establish an independent 
fiscal  institution  to  provide  analysis,  advice  and  monitor  fiscal  policy,  (g)  maintain  the 
enforceability of its medium-term budgetary framework; (h) closely monitor adherence to the 
budgetary targets throughout the year for all the levels of the general government sector. On 
14 November 2012, the Commission concluded that, based on its 2012 autumn forecast, Spain 
had taken effective action in compliance with the revised Council recommendation of 10 July 
2012 and that no further steps in the excessive deficit procedure were required. 

An  overview  of  the  current  state  of  excessive  deficit  procedures  is  available  on: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm  (please 
refer to country sections at the bottom of the page). 

17 

 
 
 
 
 
 
 
 
Long-term sustainability  

Spain  is facing a risk of fiscal stress, primarily the fiscal  front, but in part  also on  the 
macro-financial and competitiveness fronts. Full implementation of the planned adjustment 
would go a long way towards reducing the risk of fiscal stress. Spain also faces high risks to 
sustainability in a medium-term perspective and medium risks in the long run. Returning to a 
higher structural primary balance, around -0.5% of GDD as it was on average in the period 
1998-2012, would help containing these risks. The 2013 reform of early retirement schemes is 
expected to contribute to the long-term sustainability of the social security system. However, 
further  measures  to  contain  age-related  expenditure  growth  appear  necessary,  e.g.  via  the 
appropriate regulation of the sustainability factor foreseen by the 2011 reform of the pension 
system.  In  addition,  government  debt  (84.2%  of  GDP  in  2012  and  expected  to  continue  to 
rise) needs to be reduced.  

The  government  has  complemented  the  2011  pension  reform  with  additional  measures 
to  improve  the  sustainability  of  the  pension  system.  The  2011  pension  reform  was  an 
important step towards strengthening long-term sustainability.10 In addition, in early 2013, the 
government  curbed  access  to  early  and  partial  retirement,  which  contributes  to  improving 
sustainability  in  the  medium  and  long  term.11  The  prohibition  of  forced  retirement  in 
collective  agreements,  and  tightened  access  to  special  unemployment  benefit  for  older 
workers were other measures introduced in 2012 and 2013. The pension sustainability factor, 
which the 2011 reform foresaw to be triggered only in 2027, has not yet been regulated. An 
independent  experts  group  established  in  April  2013  to  propose  the  details  of  the 
sustainability factor has been tasked to report to the Toledo Pact parliamentary committee by 
the end of May 2013. The specification of the sustainability factor will need to include a clear 
link between the retirement age and gains in life expectancy, to ensure the long-term financial 
stability of the system, and could take into account other relevant factors. A prolonged period 
of high unemployment and a falling active population pose challenges to the sustainability of 
the  pension  system  in  the  short  and  the  long  term.  The  social  security  system  has  been  in 
deficit since 2011, reflecting labour market weakness. High unemployment, the transition to 
inactivity,  and  the  prevalence  of  involuntary  part-time  work  prevent  many  workers, 
particularly  women,  from  building  adequate  future  pension  rights,  adding  pressure  on  non- 
contributory pensions or social assistance.  

According  to  the  latest  long-term  projections,  public  healthcare  spending  will  increase 
by 1.3 percentage points (pps) of GDP by 2060. Crisis-related expenditure cuts have helped 
contain the growth in spending. Public healthcare expenditure decreased from 7.1 % of GDP 
in 2010 to 6.7 % in 2011. In 2010 and 2011 savings originated from cuts in the wage bill and 
pharmaceutical  expenditure.  In  2012,  measures  specifying  the  common  basket  of  healthcare 
benefits  and  an  extension  of  co-payments  on  pharmaceutical  products  were  adopted. 
However, sustainability challenges remain. Reducing long-term expenditure pressures further 
would  be  difficult  without  better  control  of  pharmaceutical  expenditure,  particularly  in 
hospitals, strengthening the relative role of primary care provision, better coordination across 
types of care, incentive-improving changes in remuneration systems, and greater interregional 
mobility  for  professionals.  The  2013  NRP  announces  that  more  measures  improving 

10According  to  the  Fiscal  Sustainability  Report  2012  public  pension  expenditure  in  Spain  will  increase  from 
10.1% of GDP in 2010 to 13.7% in 2060, higher than the EU average of 12.7% in 2060. The budgetary effect 
of the latest restrictions in early retirement has not yet been taken into account in these projections. 

11 Royal Decree Law 5/2013, of 15 March. 

18 

 
 
                                                 
efficiency in healthcare and pharmaceutical expenditure will be adopted later in the year, e.g. 
revising  reference  prices  and  centralising  purchasing  of  pharmaceutical  products,  and 
extending co-payments. 

Fiscal framework 

The  Budgetary  Stability  Organic  Law,  which  entered  into  force  on  1  May  2012, 
strengthens  fiscal  discipline  across  all  levels  of  government,  by  introducing  tighter  fiscal 
rules, including expenditure ceilings for regions and local governments, as well as providing 
for  corrective  mechanisms  and  sanctions  in  the event  of  non-compliance  with  fiscal  targets. 
As  part  of  the  law,  transparency  of  budget  execution,  especially  by  regional  and  local 
governments, has improved considerably with the publication of more timely, systematic and 
higher-frequency  data.  Starting  from  May  2013,  the  Ministry  of  Finance  is  publishing 
budgetary execution data for regions and social security on a monthly and national accounts 
basis.  More  systematic  information  on  the  regionsʼ  budgetary  laws  has  also  become 
available.12  

In addition, the Budgetary Stability Organic Law provides for the creation of financing 
mechanisms  for  sub-central  government  levels,  such  as  the  suppliers'  payment  scheme 
(plan de pago a proveedores) and the regional liquidity fund (fondo de liquidez autonómica). 
The former aims at enabling regions and local entities to pay commercial arrears (see section 
3.2).  The  latter  is  a  credit  line  to  allow  regions  with  no  or  limited  market  access  to  service 
their  public  debt.  Access  to  both  facilities  is  subject  to  financial  and  fiscal  conditionality, 
which combined with the provisions of the Budgetary Stability Organic Law, contributed in 
2012 to enhanced fiscal discipline at sub-central government level.    

However,  implementation  of  the  preventive  and  corrective  mechanisms  of  the  law  was 
not  fully  effective  and  could  have  been  more  timely  and  transparent.  For  example, 
corrective  measures  provided  for  in  the  law  were  only  applied  with  a  delay.  The  regions  ʼ 
economic  and  financial  plans  were  approved  in  May,  but  the  first  quarterly  report  on  their 
implementation  in  line  with  Article  24  was  issued  only  at  the  end  of  December.  An  earlier 
assessment and issuance of warning letters (requerimientos) would have given more time for 
the correction of budgetary slippages in 2012 in a number of regions, where there were early 
indications that the 2012 deficit target was unlikely to be met. Moreover, the first assessments 
of  the  regionsʼ  economic  and  financial  plans  could  have  been  more  informative  and  the 
publication of other reports provided for in the law could have been more timely. 

Plans to set up an independent fiscal institution to provide analysis, advice and monitor 
fiscal policy have been delayed. A first draft organic law was approved by the government in 
April 2012. The draft organic law providing for its constitution is expected to be submitted to 
Parliament in June and to be adopted in the second half of 2013. This means that, contrary to 
initial  plans,  the  new  authority  will  have  only  a  limited  role  in  the  preparatory  stage  of  the 
2014  budgetary  process.  The  new  authority  is  expected  to  enhance  fiscal  monitoring  and 
transparency  at  all  levels  of  government,  provided  that  it  is  given  sufficient  powers,  legal 
standing and resources to carry out its duties.  

12 See: 
http://www.minhap.gob.es/Documentacion/Publico/PortalVarios/FinanciacionTerritorial/Autonomica/Resumen
%20Ejecutivo%20Presupuestos/Resumen%20ejecutivo%20PRESUPUESTOS%20CC.AA.%202013.pdf.  

19 

 
 
                                                 
Tax system 

Spain has a low tax-to-GDP ratio (32.3 % in 2012), compared to the EU-27 average and 
the national average over the last decade. The tax-to-GDP ratio has decreased considerably 
since the start of the crisis, partly as a consequence of the rebalancing of the economy towards 
a  less  tax-rich  growth  pattern.  Both  direct  and  indirect  taxes  (including  social  security 
contributions)  have  are  lower  shares  inas  percentage  of  GDP  than  the  EU  average  (2012 
indirect taxes in ES: 10.2 % of GDP, EU27 average: 13.3 %; direct taxes in ES: 10.1 %, EU27 
average: 13 %). 

Some  rebalancing  of  the  relative  tax  burden  towards  consumption  and  environmental 
taxes took place in 2012. In line with the 2012 country-specific recommendations, the very 
narrow VAT base was broadened by reducing the scope of application of the super-reduced 
and reduced tax rates. The standard (from 18 to 21 %) and the reduced rate (from 8 to 10 %) 
were  increased,  while  the  4 %  super-reduced  rate  has  remained  unchanged.  However,  a 
number  of  goods  and  services  remain  subject  to  the  reduced  and  super-reduced  rates  (e.g. 
food  and  health  products,  and  some  tourist  services).  Some  excise  duties  have  also  been 
increased (e.g. on tobacco and kerosene). Limited fiscal space impeded the originally planned 
reduction  in  employersʼ  social  security  contributions.  Going  forward,  there  appears  to  be  
scope  for  further  limiting  the  application  of  the  reduced  rates  of  VAT  or  increasing  those 
rates.  

Revenues from environmental taxes as a percentage of GDP were the lowest in the EU in 
2011,  with  low  revenues  from  energy,  transport  fuel,  and  pollution  and  resource-use  taxes. 
The  package  of  taxes  on  electricity  generation  introduced  in  December  2012  to  cover  the 
electricity tariff deficit (see section 3.4) could yield around 0.2  % of GDP annually. Excise 
duties  on  petrol  and  diesel  are  currently  below  the  EU  average  and  those  in  neighbouring 
countries.  Also  in  view  of  the  reforms  that  Spain  launched  in  the  field  of  fuel  distribution, 
there  would  seem  to  be  scope  for  a  tax  increase  to  further  improve  the  functioning  of  the 
market and promote energy savings. Moreover, as in other Member States, there is scope to 
address the preferential tax treatment of diesel compared with petrol. The municipal vehicle 
circulation  taxes  in  practice  do  not  always  reflect  the  environmental  performance  of  the 
vehicles. Revising landfill and other waste taxes as well as a better water pricing policy could 
help achieve environmental objectives and fiscal consolidation.  

High tax expenditure in direct taxation reduces fiscal revenues and causes distortions.13 
In  consequence,  the  effective  tax  rates  are  much  lower  than  the  statutory  rates.  In  personal 
income tax, the tax allowance for contributions to pension plans14 has a regressive effect and 
distorts the composition of savings. In corporate income tax, there are important reductions in 
calculating the tax base, which lower the effective rate to around 60 % of the statutory rate.15 

13 See ʼTax Reforms in EU Member States. 2012 Reportʼ, European Economy No 6/2012 and Taxation Paper 

No 34, European Commission. 

14 The allowance amounted to over EUR 5.7 billion in 2009. Source: Memoria de la Administración Tributaria 

2010 (2010 Report of the Tax Administration). 

15 This is due to, among other reasons, the increased number of entities applying reduced tax rates, e.g. for the 
maintenance or increase in employment, the tax credit for reinvestment of capital gains from assets amounted 
EU  863,8  million  and  the  tax  credit  for  R&D  amounted  EUR  326,9  million  in  2009.  See  Memoria  de  la 
Administración Tributaria 2010 (2010 Report of the Tax Administration) 

20 

 
 
                                                 
Despite the reduced corporate income tax rate of 25 % for companies under a certain turnover 
threshold,  SMEs  pay  on  average  a  higher  effective  rate  than  bigger  companies.16  The 
broadening of the tax base could improve the overall efficiency of the tax system. The 2013 
NRP envisages some discretionary measures with a deficit-increasing impact, e.g. deductions 
against  income  tax  for  reinvestment  of  retained  profits  and  R&D  activities,  and  fiscal 
incentives for informal investors (ʼbusiness angelsʼ). 

There has been progress in addressing the debt bias in corporate income tax and in the 
treatment  of  housing  in  personal  income  tax,  in  line  with  the  2012  CSR.  Corporate 
income  tax  deductions  for  interest  payments  implied  an  incentive  for  high  indebteness  and 
leverage  ratios.  These  incentives  were  partly  reduced  by  introducing  a  ceiling  on  the 
deduction of net financial costs for corporate groups and associated companies. Moreover, in 
2012 Spain also withdrew tax compensation in personal income tax for house purchases made 
before  2006  and  removed  home  mortgage  deductions  against  personal  income  tax17  for 
purchases from 2013 onwards. 

The  current  design  of  recurrent  property  taxation  does  not  provide  means  to  secure 
additional revenue. The wealth tax has a temporary nature -currently applicable until 2014- 
and substantial exemptions reduce the tax base. Heterogeneous regional allowances applied in 
property,  inheritance  and  donation  taxes  lead  to  significant  differences  in  tax  liabilities  and 
reduce the efficiency of the system.  

Spain has introduced measures to combat tax evasion and improve revenue collection. In 
October 2012, an act strengthening the fight against tax fraud and evasion entered into force. 
Its provisions include stronger penalties, limits on cash payments, new reporting obligations 
for assets held abroad, and application of the VAT reverse charge mechanism for some high-
risk sectors. Moreover, in March 2013 Spain established a new international tax office to deal 
with  international  tax  audits.  These  measures  go  in  the  right  direction.  Nevertheless,  there 
remains  scope  for  further  action  so  as  to  ensure  that  taxes  are  collected  in  line  with  the  tax 
law.  

3.2. 

Financial sector  

The banking sector was seen in last year’s SWD as a source of vulnerability with respect 
to  financial  stability  and  credit  provision  to  the  real  economy.  The  growing  market 
tensions  in  the  run-up  to  Spain’s  request  for  financial  assistance  confirmed  this  assessment. 
The banking sector programme, lasting 18 months,18 started on 23 July with the signature of a 
Memorandum  of  Understanding  (MoU).  The  core  of  the  programme  is  the  sufficient 
recapitalisation and restructuring of Spanish banks, where needed, for which up to EUR 100 
billion was made available by the European Financial Stability Facility / European Stability 
Mechanism.  

16 Memoria de la Administración Tributaria 2010 (2010 Report of the Tax Administration) 
17 Tax credits for housing amounted to EUR 5 billion in 2009. Memoria de la Administración Tributaria 2010 

(2010 Report of the Tax Administration) 

18  The  programme  expires  at  end-December  2013.  However,  the  restructuring  of  the  banks  receiving  public 

support under the State aid rules is expected to take up to five years. 

21 

 
 
                                                 
Fulfilment of the conditions set out in the MoU is on track.19 The specific capital needs of 
each  participating  bank  were  established  and  the  banks  requiring  state  aid  submitted  their 
restructuring  plans  to  the  European  Commission.  The  restructuring  plans  of  banks  needing 
injections  of  capital  from  the  state  were  approved  by  the  end  of  December.  The  asset 
management company has been set up under the name of Sareb as a majority-private-owned 
company.  Regarding  horizontal  conditionality,  the  bank  resolution  framework  has  been 
upgraded, bank supervision and the regulatory powers of the banking regulator strengthened, 
and the governance structure of savings banks enhanced. 

Disbursements made so far, totalling EUR 41.4 billion, were sufficient to recapitalise the 
weaker  banks  and  for  the  Spanish  Fund  for  Orderly  Bank  Restructuring  to  inject 
capital into Sareb. The other Spanish banks either did not have a capital shortfall according 
to the bank-by-bank stress test or were able to cover the shortfall without recourse to state aid. 

In  spite  of  the  easing  of  financial  market  tensions,  tight  financing  conditions  remain  a 
major factor constraining the operations and growth of businesses in Spain, particularly 
of SMEs. Fragmented business structures and large numbers of micro-firms have resulted in 
Spanish firms being highly dependent on bank financing. Meanwhile, the general tightening 
of  credit  standards  has  made  access  to  bank  loans  more  difficult.  In  this  context,  several 
initiatives  have  been  taken  or  are  underway  to  alleviate  credit  and  liquidity  constraints  for 
companies, in particular SMEs. Measures promoting non-bank intermediation, announced in 
November 2012 in the context of the banking sector programme, are being implemented and 
are further detailed and developed in the NRP. They address the financing needs of businesses 
at various stages of development, although in the short term they cannot be expected to fully 
address the structural lack of equity financing from private sources. Funds under the European 
Regional Development Fund (ERDF) have been recently reprogrammed (approximately EUR 
320  million)  to  improve  access  of  SMEs  to  credit.  There  is  room  for  further  ERDF 
reprogramming  into  new  national  or  regional  financial  instruments  that  may  cover  loans, 
guarantees, seed and working capital for SMEs. 

Measures  are  being  taken  to  alleviate  businessesʼ  liquidity  problems  stemming  from 
long  delays  in  payments.  Spain  was  one  of  the  Member  States  with  the  longest  payment 
times by public authorities in 2011 (160 days, well above the EU average20), and in business-
to-business transactions (97 days21). Long delays create liquidity problems for companies and 
imply higher costs for the state, as providers factor in payment delays in their prices. In 2012 
the  government  provided  EUR 27.4 billion  to  settle  the  arrears  of  local  and  regional 
governments for commitments made before January 2012.22 The scheme has been extended to 
2013  (for  EUR  2.6  billion)  under  Royal  Decree  Law  4/2013,  which  also  transposes  EU 
Directive 2011/7/EU in this field. The amount of arrears outstanding following the application 
of  the  scheme  remains  unclear,  however.  According  to  the  2013  NRP,  a  third  round  of  the 
scheme to settle arrears of public administrations will be launched later in 2013. 

19 http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/pdf/ocp130_en.pdf 
20 Source: 2012 European Payment Index, which refers to 2011 data. 
21 European Payment Index 2012, Intrum Justitia. 
22 Royal Decree Law 4/2012 of 24 February, and Royal Decree Law 7/2012 of 9 March. 

22 

 
 
                                                 
3.3 

Labour market, education and social policies  

Labour market 

The  implementation  of  the  2012  labour  market  reform23  continues,  against  the 
background of a deteriorating labour market situation. The extent of the unemployment 
challenge means the impact of the 2012 labour market reform must be closely monitored and 
the need for the reform to be complemented by accompanying measures carefully analysed. 
Although it is still early to draw definitive conclusions on all aspects of the 2012 reform, and 
the  assessment  is  complicated  by  the  ongoing  contraction  of  the  economy,  available  data 
indicate  that  the  reform  has  started  to  have  some  positive  effects  on  internal  flexibility,  the 
reduction  of  dismissal  costs,  the  use  of  collective  dismissals  and  wage  moderation.  On  the 
other  hand,  the  new  permanent  contract  for  SMEs  is  apparently  not  yet  being  used 
extensively,  and,  overall,  labour  market  segmentation  remains  high.  The  governmentʼs 
evaluation of the labour market reform,  planned in the NRP to be completed in the first half 
of  2013,  could  identify  areas  where  follow-up  measures  may  be  necessary  to  achieve  the 
initial objectives of the reform, such as the role of indefinite validity of collective agreements 
(ultraactivity), the use of op-out clauses and the gap between dismissal costs across different 
contracts.  

The employment rate stands at 59.3 % (2012), far from the national employment target 
of  74  %  by  2020.  Older  workers  (44.5  %)  and  women  (55.5  %)  have  lower  employment 
rates. In the case of women this is affected by the affordability of childcare and long-term care 
services,  and  tax  considerations  for  second  earners.24  The  2012  reform  is  expected  to 
contribute to increasing the employment rate over the medium term. 

The government has adopted measures to increase the efficiency of active labour market 
policies, but the pace of reform could have been faster. Passive labour market policies and 
their  link  with  active  labour  market  policies  were  revised  in  July  2012.25  Unemployment 
benefit  and  assistance  conditions  were  reformed  and,  overall,  job-search  requirements  were 
tightened: active and proven job search is required from unemployment benefit recipients, and 
participation  in  actions  to  improve  employability  is  voluntary  for  the  first  30  days  and 
becomes  compulsory  after  that.  Furthermore,   the  gross  unemployment  benefit  after  six 
months has been reduced from 60 % to 50 % of the reference wage and the unemployment 
assistance  has been raised from 75 % to 80 % of the IPREM (Indicador público de renta de 
efectos múltiples). Eligibility conditions for the active income for jobseekers scheme (Renta 
activa de inserción) have also been amended and the links with active job seeking reinforced. 
These  measures  go  in  the  direction  indicated  in  the  2012  country-specific  recommendation, 
but their effectiveness needs to be closely  monitored. Moreover,  it  is expected  that the new 
integrated  system  for  management  of  the  unemployment  benefits  will  be  finalised  in  2013. 
This  new  tool  will  make  easier  the  control  on  the  participation  in  ALMP,  training  and  will 
have  links  to  other  national  databases  with  fiscal,  financial  or  social  security  information. 

23  On  10  February  2012  the  Spanish  government  approved  Royal  Decree-  Law  3/2012.  Parliament  passed  the 
subsequent Law 3/2012 in July 2012.  
24 The average effective tax rate for second earners is high when entering the labour market at the same income 
level:  the  second  earnerʼs  income  is  taxed  at  the  same  marginal  rate  as  that  of  the  main  earner  when 
partners file jointly, whereas the main earner loses the deduction for dependent spouse if partners file 
individually. 

25 Royal Decree-Law 20/2012, of 13 July. 

23 

 
 
                                                 
Also,  the  PREPARA  programme26  has  been  amended  and  extended,  with  an  automatic 
rollover  until  the  unemployment  rate  falls  below  20  %.  Although  so  far,  its  results  are  not 
showing the expected impact on labour market reintegration, 27 PREPARA has played a role 
in some cases as a non-negligible last-resort safety net for the beneficiaries. 

Reform of public employment services is lagging behind. Initial steps have been taken to 
develop  the  regulatory  framework  for  cooperation  between  public  employment  eervices 
(PESs) and private placement agencies. A positive element in this cooperation framework will 
be  the  performance-based  evaluation  of  the  contribution  of  the  private  agents  depending  on 
the profile of the unemployed person offered a job and the contract duration. Nevertheless, the 
work of these private employment agencies might start only in late 2013 after the adoption of 
the  legal  framework  and  the  respective  agreements  between  the  national  PES  and  the 
employment  services  of  the  regions.  Moreover,  new  measures  concerning  cooperation  and 
sharing of information among PESs concerning job vacancies have been adopted in February 
2013,28  including  the  creation  of  a  Single  Job  Portal.  These  measures  are  still  not  fully 
operational  and  a  swift  implementation  and  monitoring  remain  important.  No  specific 
measures  were  taken  to  modernise  and  reinforce  the  public  employment  service  itself  to 
provide  effective,  individualised  counselling  and  job  search  assistance  to  those  looking  for 
jobs. 

ALMPs need to be further reinforced to provide an effective individualised approach to 
the  activation  and  skills  upgrading  of  the  unemployed.  This  is  needed  to  reorient  skills 
towards current and foreseeable demand by companies. In this context, specific attention may 
have  to  be  paid  to  the  groups  most  affected  by  unemployment,  like  the  young,  women,  the 
long-term  unemployed  and  the  low  skilled.  The  employability  and  working  conditions  of 
older workers, partially addressed with the measures on early and part-retirement introduced 
in March 2013, also deserve attention to support the planned increase in the statutory and the 
effective retirement age.29  

The  Government  is  preparing  a  more  comprehensive  reform  of  active  labour  market 
policies  in  cooperation  with  the  Autonomous  Communities.  This  reform  relies  on  the 
objectives set by the 2012 Annual Plan on Employment Policies, passed on 6 July 2012:  to 
reduce  youth  unemployment,  improve  the  employability  of  the  unemployed,  support  
entrepreneurship,  step  up  public-private  cooperation  on  placement  services,  reinforce 
employment  opportunities  for  specific  groups  (such  as  people  with  disabilities),  and  fight 
fraud.  In  relation  to  these  objectives,  some  measures  have  been  adopted  with  the  reforms 
introduced in July 2012 and the National Youth Entrepreneurship and Employment Strategy. 
Most importantly, the 2012 National Employment Plan provides the basis for an assessment 
of the implementation of ALMPs by the regional governments, which will serve as a basis for 
identifying  good  practices  and  reallocating  budget  resources  towards  effective  and  well-

26  ʼPREPARAʼ  provides  for  financial  support  for  long-term  unemployed  people  who  have  no  further  right  to 

unemployment benefit or insurance, and who are receiving job-search-related training and guidance. 

27  Of  the  307  000  who  completed  the  programme  up  to  July  2012,  70  %  have  not  found  employment  yet. 
However,  the  specific  profiles  of  the  beneficiaries  combined  with  the  shortage  of  job  opportunities  in  the 
current context of crisis, also need to be taken into account. 

28 Royal Decree-Law 4/2013, adopted on 22 February. 
29  The Royal Decree Law 5/2013 introduced relevant  measures, such as an increase of penalties to be paid by 
companies  with  more  than  100  employees  when  including  workers  over  50  years  of  age  in  collective 
dismissals,  up  to  50  %  of  which  would  be  reinvested  in  ALMPs  for  older  workers.  It  also  opens  up  the 
possibility of being an active pensioner, by continuing working while receiving 50 % of the pension. 

24 

 
 
                                                 
targeted training, and career guidance measures - 15 % of the financial allocation for ALMPs 
that is transferred from the central government to the regions will be linked to a performance 
evaluation-  .  However,  the  performance  indicators  for  2012  have  yet  to  be  evaluated.  The 
forthcoming Annual Plan 2013, with new objectives and indicators, as set in the NRP, is to be 
adopted before the end of the first half of 2013. 

Responding  to  the  2012  CSR,  the  national  Youth  Employment  and  Entrepreneurship 
Strategy  2013-2016  provides  measures  to  fight  the  high  youth  unemployment.    The 
Strategy, adopted in March 2013,  incorporates a range of new measures - 15 for the short-
term30 and 85 for the medium to long-term intended to fight youth unemployment,31 including 
new  fiscal  rebates  and  hiring  subsidies  for  young  people,  new  contractual  arrangements  for 
young people and new measures to foster entrepreneurship, increase youth employability and 
improve the intermediation in the labour market. Complementing the reallocation of structural 
funds  to  youth  employment-related  actions  that  took  place  in  2012,  the  Strategy  is  to  be 
funded with EUR 3.5 billion, EUR 2.4 billion from the national budget and EUR 1.1 billion 
from  European  Social  Fund  (ESF).  The  strategy  may  contribute  to  generating  employment 
and  job  opportunities  and  is  an  important  step  towards  delivering  a  Youth  Guarantee 
Scheme.32  Close  monitoring  of  its  implementation  and  effectiveness  will  be  needed, 
especially since hiring incentives have not always proved successful in the past and the new 
contractual forms introduced could result in an increase of duality.  

The Spanish authorities adopted in 2012 the National Plan against irregular work and 
social  security  fraud.33  Apart  from  some  measures  for  improving  coordination  among 
relevant bodies, the plan aims to intensify checks and toughen legal action. These measures 
seem  to  have  produced  initial  results,  as  at  the  end  of  2012  more  than  90000  irregular  jobs 
were detected in checks (12 % more than in 2011) and social security contributions increased 
by EUR 95 million.  

Education and training 

Structural weaknesses in the education and training system have contributed to the high 
youth unemployment rate and are still largely unresolved. These weaknesses include: high 
early  school  leaving  rates,  skills  mismatches  and  insufficient  labour  market  relevance  and 
attractiveness  of  vocational  education  and  training.  To  be  effective  in  the  long  run, 
improvements in education need to enable access to quality education, to prevent and remedy 
early school leaving, and to obtain the skills and knowledge needed for effective social and 
labour  market  inclusion.  Coordination  of  all  levels  of  government  remains  key  in  education 
and training policies.  

Reinforcing  the  quality  and  relevance  of  education  and  training  remains  a  challenge.  
Despite a continued reduction from 31.2 % in 2009 to 24.9 %34 in 2012, early school leaving 
(ESL) represents a major problem, shows  important disparities among regions (ranging from 
32.5  %  in  Andalucía  to  12  %  in  Navarra)  and  stands  far  from  the  target  of  15  %  by  2020. 

30 Most of the short-term measures were included in Royal Decree-Law 4/2013, of 22 February. 
31 The new measures will be applicable as long as the unemployment rate stands above 15 %. 
32 Council Recommendation of 22 April 2013 on establishing a Youth Guarantee (2013/C 120/01) to ensure that 
all young people under the age of 25 receive a good-quality offer of employment, continued education, an 
apprenticeship or a traineeship within four months of becoming unemployed or leaving formal education. 
33 Plan de Lucha contra el Empleo Irregular y el Fraude a la Seguridad Social (2012-2014). 
34 Estimated, EUROSTAT. 

25 

 
 
                                                 
Measures put in place in recent years have, to some extent, contributed to a reduction in early-
school  leavers,  but  a  comprehensive,  adequately  funded  strategy  is  still  to  be  implemented. 
There have been national and regional measures in recent years, including the ʼPlan to fight 
ESLʼ (preventive and intervention measures such as analysis, awareness raising, follow up of 
early school leavers  to support their reintegration into the education and training system), a 
guidance  and  support  programme  (the  PROA)  and    an  initial  professional  qualification 
programme  (the  PCPI).  While  funding  for  the    ʼPlan  to  fight  ESLʼ  (EUR  40  million)  and 
PROA  (EUR  60  million)  was  maintained  in  the  2012  national  budget,  this  was  not 
supplemented  by  co-financing  by  the  Autonomous  Communities  as  in  previous  years.  In 
addition,  the  2013  national  budget  does  not  provide  funding  for  measures.  Reducing  early 
school  leaving  is  also  the  main  objective  of  the  draft  Organic  Law  for  the  Improvement  of 
Quality  of  Education  (LOMCE),  which  aims  to  increase  the  percentage  of  students 
completing  upper  secondary  education  and  obtaining  initial  and  intermediate  vocational 
training  diplomas  by  making  educational  pathways  more  flexible  and  making  vocational 
education more attractive (e.g. by introducing a two-year basic vocational training module).  

Spain  has  initiated  a  reform  of  the  vocational  education  and  training  (VET)  system  to 
better adapt the skills and competences of young people to labour market needs and to 
make VET more attractive. Apart from the basic vocational training to be introduced under 
the  LOMCE,  measures35  have  been  introduced  to  develop  the  training  and  apprenticeship 
contract and establish the basis for dual vocational training. In 2012, 4000 students and 500 
enterprises participated  in pilot projects. The measures concerning VET seem adequate but in 
the  present  economic  and  labour  market  situation  their  full  implementation  remains  a 
challenge. Further  continued efforts jointly involving public authorities, education providers 
and employers will be required to extend and consolidate the dual VET system in Spain and, 
above all, to increase participation rates in vocational training. Participation rates in lifelong 
learning, especially for low-skilled and older people, also remain low.   

Additional steps are required to reduce the number of young people not in employment, 
education  or  training  (NEETs)  and  the  high  number  of  young  unemployed  without 
formal qualifications, partly by developing a system of early career counselling (cooperation 
between schools and PES), job-search assistance for the young unemployed and early school 
leavers and improved systems for the validation of competences acquired at work to facilitate 
re-entry 
targeted  re-skilling.  The  national  Youth 
Entrepreneurship and Employment Strategy contains some measures and plans to address the 
challenge  of  the  high  number  of  young  unemployed  without  formal  qualifications,  but  its 
swift  implementation  remains  key.  Poor  language  skills  constitute  an  important  obstacle  to 
studying and working mobility, with negative implications for youth employment. 

to  education  and 

training  and 

While tertiary educational attainment is comparatively high (40.1 %36 in 2012), Spain is 
still  lacking  a  comprehensive  strategy  to  effectively  match  tertiary  education  skills  to  
market  needs.  In  the  framework  of  the  Bologna  Process,  the  Spanish  authorities  have 
announced their intention to reform the Spanish university system to make it more innovative 
and competitive in the longer term.  

35 Royal Decree 1529/2012, adopted on 8 November, which complements the 2012 labour market reform. 
36 Source: EUROSTAT. 

26 

 
 
 
 
                                                 
Social policies 

Largely due to the strong deterioration of the labour market and limited effectiveness of 
social  protection  in  reducing  poverty,  Spain  is  below  the  EU  average  in  the  main  key 
indicators  measuring  poverty  and  social  exclusion.  No  progress  has  been  made  towards 
meeting the target of reducing the number of people at risk of poverty and social exclusion by 
1.4-1.5 million by 2020. Severe material deprivation affected 3.9 % of the total population in 
2011,  while  the  at-risk-of-poverty  rate  rose  to  21.8  %  and  the  at  risk  of  poverty  and  social 
exclusion to 27 %.37 The share of people living in households with very low work intensity 
rose  to  12.2  %  in  2011.  In-work  poverty  rates  remained  at  12.3  %  in  2011,  above  the  EU 
average,  reflecting  the  deterioration  of  the  situation  for  some  clusters  of  the  employed 
population  (notably  young  people,  the  low  skilled  and  temporary  workers).  Children  are  at 
particular  risk  of  poverty,  showing  the  highest rate  among  all  age  groups,  especially  in  low 
work intensity households.38 

Overall, no major improvements were made in the development of new policy measures 
for active inclusion and poverty reduction. The NRP does not include information on the 
content or the timeframe for approval of the National Action Plan on Social Inclusion 2013-
2016, which could be the basis for further modernising the Spanish social protection system, 
in  line  with  the  priorities  of  the  2013  AGS  39  by  improving  its  sustainability,  as  well  as  its 
effectiveness in preventing poverty and ensuring essential safety nets. The key challenges are 
to rationalise targets and resources under an adequate policy framework, improve governance 
and  inter-institutional  coordination  at  national,  regional  and  local  level,  simplify  procedures 
for  social  assistance  claimants,  review  mobility  barriers,  strengthen  the  link  between  social 
assistance  and  activation  measures  through  more  personalised  support,  and  improve  the 
articulation of in- and out-of-work benefits to better address in-work poverty while reducing 
disincentives to work. Particular attention should be paid to the weakest in the labour market 
and to those exposed to the risk of suffering discrimination, such as foreign nationals, persons 
with disabilities or Roma population.40 

Limited  progress  was  made  on  measures  to  tackle  child  poverty  and  improve  the 
efficiency  of  family  support  services  in  2012.  The  Second  National  Strategic  Plan  for 
Children  and  Adolescents  2013-2016  (PENIA  II)41  was  adopted  in  April  2013,  although  it 

37National  provisional  data  for  the  year  2012  (LCS,  October  2012)  show  a  slight  decrease  in  the  at-risk-of 
poverty and social exclusion rate to 26.8%, due to the decrease to 16.9% for the group over 65 years old. For 
the group below 16 years old, it decreased to 25.9%, while for the group between 16 to 64 years old rose to 
21%. The number of persons in low work intensity households increased in 2012, standing now at 1,833,700 
(EPA, QIV-2012). Provisional data showed also an increase in in-work poverty up to 13.3 % in 2012. 

38  27.2%  of  children  in  ES  are  at  risk  of  poverty,  against  21.8%  for  the  overall  population  in  ES  (EU  rate  of 
children at risk of poverty: 20.6%). 30.6% for children in ES are at risk of poverty or social exclusion, against 
a rate of 27% for the overall population in ES (EU average of children at risk of poverty or social exclusion: 
27%). Moreover, this rate increased by more than 4pp since 2008. 

39 Annual Growth Survey 2013, ʼPursuing differentiated, growth-friendly fiscal consolidationʼ (p. 5). 
40 To this end, Spain approved a National Strategy for the Social Inclusion of Roma Population 2012-2020 and 
an Action Plan on Drugs 2013-2016, containing actions for these specific groups, but budget allocations for 
implementation remain to be confirmed. The NRP also refers to the future preparation of an Action Plan for 
the Spanish Strategy on Disabilities 2012-2020, but not timetable for approval has yet been set. 

41 Adopted on 5 April 2013. The plan has a budget of EUR 5.159 million for the next 4 years, to be implemented 
by the state, regions and local entities. It comprises eight objectives and 125 measures, covering the following 
areas: knowledge and awareness raising, family support and conciliation, emphasis on groups at risk of social 
exclusion  or  special  needs,  prevention  and rehabilitation of conflictive cases,  safe use  of  new  technologies, 

27 

 
 
                                                 
needs to be complemented by the Comprehensive Plan for Family Support (PIAF), approval 
of  which  is  still  delayed.  Households  were  increasingly  exposed  to  financial  stress,  with 
growing numbers of persons unable to face housing costs. Temporary measures were adopted 
in 2012 to protect the weakest households from evictions,42 including the creation of a social 
housing fund. As a follow up, on 18 April 2013, Parliament's economy and competitiveness 
committee approved a draft law on measures to strengthen the protection of mortgage debtors, 
debt  restructuring  and  social  rent,  which  is  now  before  the  Senate.  In  parallel,  the  potential 
impact  on  eviction  processes  of  the  recent  European  Court  of  Justice  ruling43  needs  to  be 
considered.  

3.4.  Structural measures promoting growth and competitiveness  

Product and services market reforms 

Progress  in  addressing  structural  obstacles  to  growth  and  competitiveness  in  product 
and services markets, as addressed by the 2012 CSR, has been mixed. Reforms are crucial 
to create the  right framework conditions and incentives so that the reallocation of  resources 
towards tradable sectors continues and spurs growth and employment creation. 

The  draft  law  on  market  unity  aims  at  addressing  the  fragmentation  of  the  domestic 
market,  which  hinders  competition  and  prevents  businesses  from  taking  advantage  of 
economies of scale and scope. The law was announced as part of the September 2012 reform 
plan for Q4-2012. A first draft was adopted by the Council of Ministers on 25 January 2013. 
The  parliamentary  adoption  of  the  law  is  foreseen  in  the  NRP  by  the  end  of  2013  under 
urgency procedure. The draft is inspired by the EU's Services Directive, but it is broader in 
scope.  It  provides  for  principles  favouring  free  establishment  and  movement  of  goods  and 
services in Spain44 and for their application in practice. Once in force, all legal texts enacted 
at local, regional and central government level that may be considered inconsistent with the 
market unity law will have to be amended in the following six months. This process will be 
supported by enhancing administrative cooperation, and setting up a procedure for responding 
quickly to complaints about obstacles to the single market. An ambitious law on market unity 
would  be  a  key  step  towards  improving  the  business  environment  and  competition  by 
facilitating  establishment,  circulation  of  goods  and  services  throughout  Spain  and  by 
simplifying business licensing requirements. 

Further  liberalisation  of  professional  services  has  been  delayed.  Available  data45  show 
that  professional  services  are less  productive  than  in  the  EU  average.  In  addition  to  the  job 
creation  potential,  reforming  professional  services  would  lift  the  competitiveness  of  the 
overall  economy,  given  that  they  are  an  input  for  other  sectors  of  the  economy.  The  2013 
NRP commits again to this reform, which builds on the transposition of the Services Directive 
of  2009.  According  to  the  2013  NRP,  the  forthcoming  reform  will  provide  for  a  common 
framework  for  professional  services  based  on  the  general  principle  of  freedom  of  access  to 

quality  education,  health  and  participation  in  the  environment.  The  Plan  includes  measures  to  fight  against 
child  poverty,  including  the  preparation  of  a  National  Plan  to  Fight  against  Child  Poverty  (also  priority 
objective in the NAPin). 
42 Royal Decree-Law 27/2012. 
43 Court case C-415/11, of 14 March. 
44 E.g. non-discrimination, necessity and proportionality of restrictions, mutual cooperation, national validity of 

administrative requirements, administrative simplification and transparency.  
45 See Eurostatʼs Annual detailed enterprise statistics for services (NACE-rev2).  

28 

 
 
 
                                                                                                                                                         
and  exercise  of  those  activities.  It  can  potentially  increase  the  mobility  and  competition 
among  providers  of  professional  services  throughout  Spain,  provided  that  limitations  to  the 
general  principle  are  minimised  and  justified  by  overriding  reasons  of  public  interest.  Once 
the  law  is  approved,  the  consistency  of  sector  specific  legislation,  including  regional 
legislation and professional organisationsʼ internal rules, with the new regulatory framework 
will need to be swiftly ensured so that the liberalisation starts deploying its effects.  

The measures adopted to support entrepreneurship need to be complemented with the 
announced law on entrepreneurship and company internationalisation, the adoption of 
which is now planned by the NRP by the end of 2013.46 The law is supposed to inter alia 
provide for the creation of a regime of limited liability for entrepreneurs, the establishment of 
out-of-court  settlement  mechanisms  to  allow  formerly  bankrupt  entrepreneurs  a  fresh  start, 
and  fiscal,  financial  and  other  measures  to  support  company  growth.  The  law  could  have  a 
positive  impact  on  company  and  job  creation  as  well  as  on  resource  reallocation.  The  2012 
simplification of licensing for small retail outlets ("express licence"), which will be extended 
in 2013, the planned revision of licensing regimes at local level and the creation of an online 
mechanism  for  submitting  the  required  declarations  to  start  an  economic  activity  could  also 
contribute  to  fostering  entrepreneurship.  Broader  use  of  the  declaration  and  notice  systems 
(with  ex-post  controls)  simplifies  licensing  procedures  and  may  promote  new  business 
creation while reducing barriers to firm growth, entry and exit.  

There appears to be scope for a greater role of industrial activity in the economy. Spain 
has a relatively small share of manufacturing activities (13.3% of gross value added compared 
to 15.3% for the EU-27 in 2012), and a need to rebalance the economy towards the tradable 
sector  in  a  lasting  way.  Ongoing  and  planned  initiatives  to  simplify  licencing  requirements 
and  more  generally  the  business  environment,  may  benefit  the  industrial  sector  to  some 
extent. However, specific initiatives to simplify industrial licensing should be considered.  

Structural  rebalancing  of  the  economy  requires  greater  price  responsiveness  to 
economic  conditions.  Gains  in  cost  competitiveness  have  so  far  not  been  accompanied  by 
similar gains in domestic price competitiveness, which would be important to boost also intra 
competitiveness. In the 2013 NRP, to address the issue of price inertia, the authorities plan to 
implement  a  new  indexation  rule,  which  would  be  applied  to  all  public  revenues, 
expenditures,  charges  and  prices  currently  indexed  by  the  consumer  price  index  (CPI).  The 
rule would be based on core inflation at constant tax rates with an upper limit of 2 % and is 
expected  to  be  adopted  by  the  end  of  2013.  It  is  hoped  that  the  new  rule  will  become  a 
benchmark for the private sector as well. Further steps would have to be considered to reduce 
the  prevalence  of  indexation  clauses  in  the  Spanish  economy  more  generally.  It  is,  for 
example, questionable whether indexation should be applied to that part of public expenditure 
related to long-term public contracts. 

A  review  of  the  insolvency  framework  could  contribute  to  easing  entry  and  exit 
conditions for business and to orderly  deleveraging in the private sector. The ability of 
many SMEs and households to service their debts has been damaged by the crisis. The current 

46  Only  some  measures  of  the  plan  to  support  entrepreneurship  (Plan  de  estímulo  económico  y  de  apoyo  al 
emprendedor)  of  22  February  2013  have  been  formally  adopted  through  Royal  Decree  Law  4/2013  of  22 
February (Medidas de apoyo al emprendedor y de estímulo del crecimiento y de la creación de empleo). 

29 

 
 
                                                 
insolvency  regime  appears  to  be  unduly  complex  and  costly,  especially  for  households.47 
Inefficient bankruptcy procedures, which are compounded by long judicial resolution periods, 
may  have  encouraged  creditors  to  use  the  mortgage  system  to  secure  their  loans  and  hence 
biased firms towards investing in assets which can serve as collateral, notably tangible fixed 
assets. In general, difficulties in recovering loans from insolvent firms have resulted in higher 
collateral  requirements  from  borrowers,  while  low  opportunities  for  discharge  may  have 
dented  entrepreneurship.48  Overall,  streamlining  the  insolvency  framework  for  the  Spanish 
private  sector,  beyond  the  measures  that  were  announced  in  the  context  of  the  above 
mentioned  Law  on  entrepreneurship  and  company's  internationalisation,  while  preserving 
lending discipline, might contribute to smoother entry and exit of firms and bring significant 
economic benefits in the medium term. These measures could be flanked by possible actions 
to  restructure  the  debt  of  viable  firms  and  give  entrepreneurs  a  second  chance,  thereby 
promoting entrepreneurial activity and helping to reallocate resources within the economy. 

Barriers  to  entry  for  large  retail  outlets  limit  competition  in  the  retail  sector.    Recent 
reforms, in particular the more flexible shop opening hours, liberalisation of sales periods, and 
simplification of licensing procedures for small retail outlets approved in 2012, could enhance 
competition  in  the  retail  sector.  However,  regional  authorisation  schemes  for  large  retail 
outlets  limit  the  entry  of  new  operators  with  the  ability  to  increase  competitive  pressure  on 
incumbent  retailers.  Increased  concentration  in  food  distribution  has  resulted  in  retailers 
gaining bargaining power over suppliers. Extending the simplified licensing regime to larger 
outlets (e.g. over 500 m2) could enhance competition. Given the role of the distribution chain 
in  final  price  formation,  effective  competition  along  the  chain  would  facilitate  the  pass-
through of cost moderation (including raw materials) on final prices, and as a consequence on 
inflation. 

Market regulation and competition oversight 

More  competition  is  needed  to  raise  productivity  at  firm  level  and  further  increase 
competitiveness.  In  2011  and  2012,  labour  cost  adjustments  were  partially  absorbed  by 
widening profit margins, thus partly offsetting the positive effect of cost moderation on price 
competitiveness.  Profit  margins  grew  faster  particularly  in  market  services  (e.g.  in 
professional  activities,  trade,  transport  and  the  hospitality  sector),  which  could  point  to  the 
need  for  firms  to  rebuild  their  finances  in  the  context  of  tight  credit  conditions,  but  also 
weaknesses  in  effective  competition  in  an  environment  of  sluggish  domestic  demand. 
Restrictions on competition are often linked to the highly devolved institutional structure of 
the country. The National Competition Authority refers to numerous competition problems at 
regional  level  (especially  restrictive  regulation) and  local  level  (protection  of  incumbents  in 
the  area  of  public  services).  Regional  restrictions  often  counteract  the  effect  of  pro-
competitive  regulation  adopted  at  national  level,  an  issue  that  will  be  addressed  by  the 
upcoming law on market unity.  

Arrangements  for  the  planned  merger  of  regulatory  and  competition  oversight 
authorities  in  the  initial  government  proposal  have  raised  some  objections  from  the 
European Commission. In September 2012 the government adopted a draft law to merge the 
national  competition  authority  with  supervisory  and  regulatory  authorities  in  six  sectors 

47 Crisis Económica y deudores hipotecarios: actuaciones y propuestas del Defensor del Pueblo, Defensor del 

Pueblo 2012. 

48 OECD Economic Surveys: Spain, OECD 2012. 

30 

 
 
                                                 
(energy,  telecommunications,  postal  services,  audio-visual  industries,  railway  and  air 
transport)  thus  creating  a  single  body  —  the  National  Commission  for  Markets  and 
Competition  (CNMC).  The  aim  of  this  reform  is  to  provide  for  consistent  application  of 
competition principles across the various economic sectors. The Parliament approved the law 
on 22 May 2013, the challenge ahead lies on its swift implementation. The reform has raised 
some  concerns  regarding  the  financing  of  the  new  body,  the  transfer  of  competences  and 
functions  currently  exercised  by  independent  sectoral  regulators  to  line  ministries,  and  the 
early  termination  of  the  mandate  of  some  board  members.  In  addition,  while  the  draft 
preserves the enforcement powers of the competition authority, it seems to blur the existing 
range  of  advocacy  tools.  Some  of  these  concerns  may  be  addressed,  however,  through 
implementing  regulations  and  internal  rules  for  the  new  Competition  and  Regulatory 
Authority.  

Rental market 

Efforts to create a larger and more efficient rental market, which would support labour 
mobility,  are  still  at  an  early  stage.  Only  17 %  of  the  population  in  Spain  lives  in  rented 
accommodation.  High  home  ownership  rates  limit  incentives  to  geographical  mobility  and 
thus reduce the potential for swift adjustment  of  economic  imbalances.  However,  numerous 
restrictions  on  rental  contracts  (e.g.  minimum  compulsory  duration  and  long  resolution 
procedures)  hamper  the  development  of  the  rental  market.  To  ease  the  rebalancing  process 
within  the  Spanish  housing  market,  a  developed  and  well-functioning  rental  segment  is 
essential,  as  it  would  provide  an  alternative  to  ownership,  diminish  the  pressure  on  house 
prices  and  reduce  their  volatility.  Social  housing  has  also  been  traditionally  geared  to 
ownership rather than renting. Removing the tax deductibility of mortgage interest payments 
and repayments  in 2012 was essential to shifting  incentives  away  from  home  ownership.  In 
August  2012  the  government  presented  a  proposal  for  rental  market  reform,  finally  adopted 
by  Parliament  in  May  2013.  The  reform  gives  parties  more  flexibility  in  designing  rental 
contracts,  strengthens  legal  certainty  in  real  estate  transactions,  and  changes  eviction 
procedures.  The  housing  plan  adopted  in  April  2013  aims  to  achieve  various  social  and 
economic goals, including financial support for tenants in rented accommodation. 

Energy, transport, infrastructure and environment 

Energy represents a major input cost for the economy that could be reduced by greater 
efforts  to  enhance  energy  efficiency.  The  energy  trade  deficit  has  been  increasing  since 
2009, to reach more than 4 % of GDP in 2012, partly due to higher world energy prices, which 
limit the scope for achieving a sustainable trade surplus. Significant improvements in energy 
efficiency  could  be  achieved  in  the  buildings,  transport  and  industrial  sectors.  Meanwhile, 
measures to improve energy efficiency have not always followed the Second National Energy 
Efficiency Plan 2011-2020,49 and are not always being achieved at the lowest possible cost, 
for example, the car fleet renewal scheme has limited benefits for the environment but a high 
budget allocation. In other cases, they only address part of the potential energy saving, e.g. the 
focus  on  lighting  appliances  instead  of  a  broader  range  of  actions  for  SMEs.  Intelligent 
transport  systems,  parking  policies  and  congestion  pricing  are  not  always  fully  exploited  to 
reduce congestion in big metropolitan areas. 

49 

Informe  sobre  el  sector  energético  español,  Comisión  Nacional  de  Energía,  March  2012, 
http://www.cne.es/cne/Publicaciones?accion=3&id=3026&id_nodo=32 

31 

 
 
                                                 
The  recent  trend  in  gross  margins  in  the  fuel  distribution  sector  is  characteristic  of 
uncompetitive  markets.50  Consumers  have  to  bear  the  burden  of  high  pre-tax  fuel  prices 
(compared  with  international  fuel  prices);  they  are  among  the  highest  in  the  EU  due  to 
sizeable distribution margins. This might be due to high concentration in the automotive fuel 
sector, the high level of vertical integration between supply, refining and retail activities, the 
low market share of low-cost fuel retailers, burdensome administrative processes required for 
opening new service stations, and low competition between service stations located on major 
roads.  In  February  2013,  the  government  simplified  procedures  for  opening  service  stations 
and  introduced  some  measures  which  reduce  the  power  of  established  distributors  against 
independent retailers.  

There is scope for improving competition in the retail electricity market.51 The market is 
to  a  large  extent  vertically  integrated.  The  energy  regulator  (CNE)  does  not  have  sufficient 
powers  to  carry  out  investigations  into  the  functioning  of  the  wholesale  market.  Most 
domestic consumers are supplied under the ‘last resort tariff’,52 which has a negative impact 
on  switching  rates  between  suppliers  and  upholds  concentration  in  the  retail  market. 
Consumers  are  often  not  provided  with  sufficiently  clear  information  on  electricity 
consumption and related prices.53 

The ‘electricity tariff deficit’ involves a considerable contingent liability for the budget 
and  non-negligible  macroeconomic  risks.  The  deficit,  i.e.  the  gap  between  the  regulated 
‘access  tariffs’  paid  by  consumers  and  various  regulated  costs  (including  distribution  costs 
and  subsidies  for  renewable  energy  production)  stood  at  over  EUR 5 billion  in  2012, 
exceeding the approved level of EUR 1.5 billion by a wide margin. In recent years the deficit 
has been driven also by failure of regulated tariffs to follow increases in costs, primarily the 
unexpectedly  high  growth  in  support  to  renewable  energy  sources,  repayment  of  the  tariff 
debt from the previous years, and electricity transmission costs. High investment in renewable 
technologies  was  due  to  their  falling  costs  and  generous  support  for  renewable  energy 
sources,  fostered  by  the  indexation  of  regulated  costs.  The  cumulative  tariff  debt  is 
EUR 29 billion  (equivalent  to  almost  3%  of  GDP),  which  to  a  large  extent  has  been 
securitised by the Electricity Debt Amortisation Fund, backed by a government guarantee.  

Measures to contain the electricity tariff deficit have been insufficient so far. New taxes 
on energy production to cover the deficit were adopted in December 2012.54 In February 2013 
the government proposed simplifying the system of support for renewable energy and revising 
the annual adjustment of regulated costs.55 In addition, an extraordinary credit from the state 
budget  of  EUR 2.2 billion  was  made  available.  Eliminating  the  deficit  will  require  a 
comprehensive approach, based on a combination of gradual adjustment of electricity tariffs, 
a downward review of costs and a reassessment of revenues (e.g. possibly sharing costs with 

50 Informe sobre la consulta efectuada por la Secretaría de Estado de Economía y Apoyo a la Empresa sobre el 
mercado  de  carburantes  de  automoción  en  España.  Comisión  Nacional  de  la  Competencia,  2012. 
http://www.cncompetencia.es/Inicio/Informes/InformesyEstudiossectoriales/tabid/Default/aspx 
Informe  sobre  el  sector  energético  español,  Comisión  Nacional  de  Energía,  March  2012 
http://www.cne.es/cne/Publicaciones?accion=3&id=3026&id_nodo=32. 

51 

52 Low voltage electricity consumers whose contracted power does not exceed 10 kW are entitled to this tariff. 
53  The  functioning  of  retail  electricity  markets  for  consumers  in  the  European  Union,  European  Commission, 

2010. 

http://ec.europa.eu/consumers/consumer_research/market_studies/docs/retail_electricity_full_study_en.pdf. 
54 Law 15/2012. Law 17/12 allocates 90 % of the revenues from the EU ETS allowances to the tariff deficit. 
55 Royal Decree-Law 2/2013. 

32 

 
 
                                                 
other energy sectors) and of subsidies discouraging energy efficiency. In the 2013 NRP, the 
government announced that a draft law further reforming the energy sector and allowing for 
periodic  reviews  of  regulated  costs  will  be  presented  by  the  end  of  June  2013.  The 
government has announced that the existing support for electricity generated using domestic 
coal will expire after 2014.56 

The low cross-border transmission capacity with France has contributed to inefficiencies 
and higher costs. It prevents Spain from engaging in cross-border trade in electricity and gas, 
and from profiting from its overcapacity in electricity generation (only 44 GW is used at peak 
demand compared with 100 GW installed). A new 2 000 MW electricity interconnection with 
France is being built and could be operational in 2014. A sixth, 4 000 MW, interconnection is 
planned  to  be  built  by  2020.  Building  cross-border  gas  interconnections  with  Portugal  and 
France  (as  part  of  the  Africa-Spain-France  gas  corridor)  would  foster  competition  between 
gas companies, increase the liquidity of the market, allow diversity of supply, and help use the 
potential  of  the  Spanish  liquefied  natural  gas  terminals.  Better  coordination  between  the 
central and regional governments on authorisation procedures would facilitate installation of 
power plants, both conventional and renewable.  

The extensive network of motorways, high-speed railway lines, airports and ports entails 
high ongoing maintenance and renewal costs. The transport infrastructure deficit of the past 
has,  to  a  large  degree,  been  addressed.  Reducing  public  investment  and  focusing  on 
maintenance of the networks as has recently been the case seems appropriate. More stringent 
cost-benefit  analysis  of  proposed  projects  is  needed  to  avoid  further  over-investment  and  to 
optimise existing infrastructure. The 2013 NRP presents some conflicting goals for transport 
policy,  e.g.  reduction  of  the  operation  costs  of  the  network  and  continued  construction  of 
high-speed railway lines. Setting up an independent observatory, as planned by the authorities 
would help to assess projects in a more transparent way based on objective criteria. 

Low  traffic  flows  in  many  cases  do  not  cover  the  operational  costs  of  transport 
infrastructure.  Road  transport  users  do  not  bear  a  proportionate  share  of  the  overall 
maintenance  costs  of  the  infrastructure.  Operators  of  several  toll  motorways  face  financial 
difficulties, which imply a significant contingent liability for public finances. The network of 
airports  is  vast  and  unprofitable  regional  airports  continue  to  put  an  unnecessary  burden  on 
public  finances.  The  regulatory  framework  for  airports  is  not  entirely  complete  and  offers 
room for improvement, notably in relation to airport charges and airport slot coordination. As 
announced  in  the  2013  NRP,  the  authority  attributing  time  slots  should  be  given  more 
independence. 

to  seaports  and  weak  cross-border  connections.  The 

In  recent  years,  railway  freight  transport  has  been  losing  market  share,  partly  due  to  
weak  connections 
low 
competitiveness  of  railway  freight  stems  from  underinvestment  in  freight  lines  and  weak 
development  of  intermodal  nodes.  Due  to  underdevelopment  of  the  Mediterranean  and 
Atlantic axis, very little cargo is transported from and to seaports by rail, and standard gauge 
lines  generally  do  not  reach  the  major  ports.  The  establishment  in  Spain  of  rail  freight 
corridors57  should  contribute  to  the  development  of  domestic  and  cross-border  rail  freight. 

56 The scheme for remuneration of domestic coal compensates for costs derived from a public service obligation 
and  was  approved  by  the  European  Commission.  The  capacity  remuneration  scheme  is  remuneration  for 
availability and environmental investment under the Large Combustion Plant Directive. 

57 EU Regulation 913/2010. 

33 

 
 
                                                 
This  calls  for  ambitious  targets  for  the  development  of  the  rail  freight  corridors,  and  in 
particular  their  technical  standards.  Spain  has  several  ports  which  are  large  by  European 
standards  (e.g.  Barcelona,  Valencia,  Algeciras),  but  also  a  considerable  number  of  smaller 
ports, as investment in port infrastructure has very often been guided by regional priorities. A 
coherent  national  strategy  concentrating  resources  and  focusing  on  the  improvement  of 
railway  connections  to  the  major  ports  is  lacking  in  the  NRP  2013.  While  the  management 
model  for  ports  has  seen  some  liberalisation,  there  are  still  restrictions  on  competition  that 
have a detrimental effect on the efficiency of the sector.  

To  bring  effective  competition  in  railway  transport,  liberalisation  would  need  to  be 
accompanied by additional measures. The national rail passenger market is supposed to be 
liberalised  from  31 July  2013,  but  initially  only  tourist  lines  will  be  opened  to  competition. 
This does not create effective competition in the sector. Opening up the freight market should 
by  now  be  fully  achieved,  but  technical  and  legal  obstacles  prevent  effective  competition. 
Low  interoperability  with  the  rest  of  the  European  railway  network  (e.g.  different  gauge, 
rolling stock, and technical requirements) could prevent potential new entries into the market.  

Spain faces considerable challenges in the area of water and waste management and air 
quality. As one of the most arid countries in the EU, Spain needs relatively high investment 
in  infrastructure  and  sophisticated  institutional  arrangements  to  harness  the  productive 
potential of  water. While  sectors  like  agriculture, tourism and energy are heavily dependent 
on water supply, water tariffs are among the lowest in the EU, despite serious water stress. A 
discrepancy  between  fees  and  operating  costs  and  inappropriate  supply  and  demand 
management mean that available resources may not be put to their most efficient, priority use. 
Major water-saving potential in agriculture has not been yet fully exploited, e.g. by means of 
adequate  pricing  or  improvements  in  the  water  supply  network.  Apart  from  economic 
incentives,  changes  to  governance  (e.g.  identification  of  priorities,  improved  institutional 
coordination, raising awareness) could also be envisaged. More than 50 % of municipal waste 
goes  to  landfill,  while  waste  prevention  and  recycling  are  not  fully  developed.  Individual 
transport  exacerbates  seasonal  problems  with  air  quality  in  the  major  cities.  The  2013  NRP 
does not propose explicitly how to improve waste or water management. 

Research and innovation 

Public and private funding for research and innovation (R&I) has markedly decreased 
over  the  last  four  years.  The  considerable  increase  in  public  and  private  research  and 
development  (R&D)  expenditure  over  the  decade  2000-09  has  had  a  positive  impact  on 
science  performance  but  did  not  boost  innovation  significantly.58  Public  funding  has  fallen 
since 2009 and it does not currently provide sufficient incentives for universities and public 
research organisations to cooperate with industry and societal stakeholders. The result is a low 
rate  of  transformation  of  R&I  into  commercial  products  and  services.  Spanish  firms  are 
reluctant  to  integrate  R&D  into  their  business  models,  and  private  expenditure  on  R&D 
remains  insufficient.  Innovation  policy  is  increasingly  taking  on  a  regional  dimension, 
requiring  reinforced  coordination  between  national  and  regional  policies.  There  is  scope  for 
improving the efficiency of public expenditure in R&D with more elements of performance-
based  funding,  including  for  universities  and  research-performing  organisations.  An 
evaluation  of  the  impact  of  R&D  tax  credits  could  also  be  carried  out  to  understand  why 
business expenditure on R&D does not appear responsive towards those incentives. 

58 Source: Innovation Union Scoreboard. 

34 

 
 
                                                 
In response to these challenges, in February 2013 the Spanish authorities adopted a new 
national  strategy  for  science,  technology  and  innovation,  together  with  a  state  plan  for 
scientific  and  technical  research  and  innovation.  In  response  to  the  2011  law  on  science, 
technology and innovation, a new national research agency is being set up. The agency would 
represent progress in terms of flexibility in handling multi-annual budgets and facilitating the 
management and evaluation of publicly funded research and innovation activities. For the first 
time Spain has drafted a comprehensive strategy which covers the whole spectrum of  R&D 
and  innovation  measures,  from  human  capital  and  skills,  through  strengthening  Spainʼs 
excellence base, to fostering the development of industrial leadership in R&I. The strategy is 
aligned  with  the  Framework  Programme  for  Research  and  Innovation  (ʼHorizon  2020ʼ)  and 
reflects  the  Europe  2020  strategy.  It  covers  supply-side  and  demand-side  policies,  aims  to 
incorporate  key  enabling  technologies  into  traditional  industries,  and  creates  stronger 
incentives for public-private cooperation and private funding of R&I. Implementation of the 
strategy and the plan and evaluation in line with international peer review standards will be 
crucial for their success. 

Spanish  enterprises  do  not  use  the  potential  of  e-commerce  to  boost  their  sales  in  the 
domestic  market  and  abroad.  Only  a  small  proportion  of  Spanish  SMEs  sell  online.  The 
slow  uptake  of  e-commerce  may  also  be  linked  to  a  poor  performance  of  the  market  for 
internet services provision.59 

3.5.  Modernisation of public administration  

The  highly  decentralised  setting  calls  for  enhanced  coordination  between  the  various 
public  administrations,  both  to  reduce  costs and  to  limit  the  administrative  burden  on 
companies and households. The Autonomous Communities account for around 35% of total 
general government expenditure and have legislative powers in the policy areas provided for 
in their statute laws, such as health and social policies. Local governments are responsible for 
some  13%  of  expenditure.  Several  legislative  initiatives  have  been  undertaken  or  will  be 
completed  in  the  course  of    2013  to  enhance  control  and  improve  coordination  among  the 
national, regional and local administrations. 

Several reform initiatives  to  modernise the public administration are under way. First, 
the  2012  Budgetary  Stability  Organic  Law  reinforced  fiscal  discipline  at  all  levels  of 
government (see section 3.1). Second, in February 2013, the government presented a draft law 
on local administration reform (to be adopted by Parliament by the end of 2013), which aims 
at  clarifying  the  powers  of  municipalities,  streamlining  their  structure,  rationalising  their 
staffing  and  enhancing  financial  and  budgetary  supervision  of  local  entities.  Third,  the 
creation on an Office for Fiscal Responsibility is expected to enhance fiscal monitoring and 
transparency  at  all  levels  of  government  (see  also  section  3.1).  Fourth,  several  committees 
reporting to the Minister of Finance60 are, among others, screening administrative structures 
for duplications between the central government and the regions and are identifying burdens 
in administrative procedures, with a deadline of mid-2013 for the submission of conclusions 
and  quantification  of  potential  savings.  However,  the  NRP  lacks  detail  on  the  potential 
follow-up to the work of the committee, whose final report is expected to be issued by the end 

59 

Eighth 

Consumer  Markets 

Commission, 
http://ec.europa.eu/consumers/consumer_research/editions/cms8_en.htm.  The  functioning  of  the  market  for 
internet access and provision from a consumer perspective, Study on behalf of the European Commission. 

Scoreboard, 

December 

European 

2012, 

60 E.g.., the Comisión para la Reforma de las Administraciones Públicas (CORA). 

35 

 
 
 
                                                 
of June 2013. Finally, the draft laws on market unity and on local administration reform may 
ease business licensing requirements, by inter alia, reducing the number of cases in which the 
Spanish  public  sector  requires  permits.  While  all  these  initiatives  go  in  the  right  direction, 
they  will  eventually  be  tested  against  the  expected  improvement  in  the  efficiency  of  public 
spending, the quality of public services, and enhanced fiscal discipline and transparency.   

An  efficient  public  procurement  policy  could  contribute  to  transparency    and  fiscal 
savings.  While  Spain  boasts  a  relatively  developed  system  of  electronic  publication  of 
contract  notices,61  available  statistics  show  that  the  size  of  pooled  volumes  procured  by 
central purchasing bodies is below the EU average (around 3 % of the total value of public 
procurement in Spain from 2006 to 2010, compared with an EU average of 12 %). Given the 
well-known advantages of procurement centralisation (in terms of lower prices), these figures 
suggest  that  savings  could  be  reaped  from  additional  pooled  purchases.  In  this  respect,  the 
2013  NRP  points  to  strengthening  centralised  procurement  for  health  supplies.  The  use  of 
electronic  means  in  public  procurement  is  another  way  of  economising  on  resources.  Spain 
has set an ambitious target of conducting 50 % of public procurement above EU thresholds by 
electronic  means.  However,  the  (few)  available  data  show  that  e-procurement  take-up62  is 
currently  below  the  target.  Moreover,  the  current  dispersion  of  the  e-procurement  platforms 
used by contracting authorities at regional level increases companiesʼ compliance costs.    

Reforms  to  improve  the  working  of  the  judicial  system  are  being  prepared,  although 
some measures have been delayed. An effective justice system enhances trust and stability 
and  thus  is  an  important  component  of  an  attractive  business  environment.  The  EU  Justice 
Scoreboard  shows  areas  of  concern  in  the  efficiency  of  the  Spanish  judiciary,  in  terms  of 
lower clearance rates, a higher case backlog and relatively lengthy proceedings.63 In 2012, the 
Authorities  already  acknowleged  the  need  to  enhance  the  efficiency  of  the  judicial  system 
with  a  view  to  facilitating  investment  and  economic  activity.  To  this  end,  the  2012  NRP 
included  measures  such  as  reorganising  the  judiciary  and  the  courts,  implementing  the 
electronic  judicial  file,  promoting  out-of-court  solutions  to  conflicts  and  amending  specific 
procedural  and  substantial  legal  provisions  relevant  to  businesses.  While  certain  measures 
have been adopted recently, others are still in preparation. For example, the draft legislation 
on  court  and  judiciary  reorganisation  is  now  scheduled  for  the  end  of  2013.  This  important 
reform  will  be  accompanied  by  amendments  to  the  codes  of  criminal  and  civil  procedure. 
Significant investment has been made in information and communication technologies (ICT), 
with Law 18/2011 providing for the use of ICT tools in courts so as to increase the efficiency 
of the judicial system. However, these are not yet readily available throughout Spain. Lastly, 
there are no data as of yet to assess the new legal framework on mediation and on court fees 
adopted in 2012.64  

61 It is expected that the platform for the publication of contract notices and awards (Plataforma de Contratación 
del Estado) will become mandatory for all general government entities upon the entry into force of the market 
unity  law  (currently,  it  is  mandatory  for  the  central  government  only).  This  change  will  ease  access  to 
information on business opportunities, which will no longer be scattered across various portals. 

62 E-procurement take-up is measured as value of procurement carried out using electronic submission of tenders 

divided by the total value of procurement. 

63  http://ec.europa.eu/justice/effective-justice/files/justice_scoreboard_communication_en.pdf 
64 Law 5/2012, of 6 July, de mediación en asuntos civiles y mercantiles.  

36 

 
 
                                                 
4. 

OVERVIEW TABLE  

2012 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

CSR 1: Deliver an annual average structural fiscal effort 
of  above  1.5 
 %  of  GDP  over  the  period  2010-13  as 
required by the Council recommendation under the EDP 
by  implementing  the  measures  adopted  in  the  2012 
budget  and  adopting  the  announced  multiannual  budget 
plan  for  2013-14  by  end  July  2012.  Adopt  and 
implement  measures  at  regional  level  in  line  with  the 
approved  rebalancing  plans  and  strictly  apply  the  new 
provisions  of  the  Budgetary  Stability  Law  regarding 
transparency  and  control  of  budget  execution  and 
continue  improving  the  timeliness  and  accuracy  of 
levels  of  government. 
budgetary  reporting  at  all 
Establish  an  independent  fiscal  institution  to  provide 
analysis,  advice  and  monitor  fiscal  policy.  Implement 
reforms  in  the  public  sector  to  improve  the  efficiency 
and  quality  of  public  expenditure  at  all  government 
levels. 

Spain has implemented the CSR only partially. 

Spain  has  implemented  a  structural  effort  in  2012 
and  2013  which,  account  taken  of  the  unexpected 
adverse economic developments compared to when 
the  Council  recommendation  was  issued,  is  in  line 
with  the  EDP  recommendation.  However,  Spain 
targets 
will  not  meet 
established  in  the  Council  Recommendation  of  10 
July 2012. 

the  nominal  budgetary 

The  provisions  of  the  Budgetary  Stability  Laws 
regarding 
the  envisaged  early  warning  and 
corrective  mechanisms  to  limit  deviations  from  the 
budgetary targets of the Autonomous Communities 
have  not  been  implemented  in  a  fully  transparent, 
timely,  and  effective  way.  Specifically,  the  first 
assessments  of  the  regions'  economic  and  financial 
plans published in late December 2012 should have 
been  done  one  quarter  earlier,  thereby  giving 
regions  more  time  for  the  correction  of  emerging 
budgetary deviations. Progress has been made with 
respect  to  budgetary  reporting  at  central,  regional, 
and  social  security  levels  by  publishing  monthly 
budgetary  execution  data  on  national  accounts 
basis. However, achieving a higher degree of fiscal 
transparency  would  require  more  comprehensive, 
consistent,  and  timely  reporting  on  a  consolidated 
general government basis in line with ESA 95. 

The  submission  of  the  draft  law  providing  for  the 
setting  up  of  an  independent  fiscal  authority  was 
submitted to the Council of Ministers in April 2013; 
contrary  to  initial  expectations  the  authority  is 
unlikely  to  be  fully  operational  in  the  2014 
budgetary procedure.  

CSR  2:  Ensure  that  the  retirement  age  is  rising  in  line 
with  life  expectancy  when  regulating  the  sustainability 
factor  foreseen  in  the  recent  pension  reform  and 
underpin  the  Global  Employment  Strategy  for  Older 
Workers  with  concrete  measures  to  develop  lifelong 
learning further, improve working conditions and foster 

There is some progress in relation to this CSR. 

In early 2013, access to early and partial retirement 
was  curbed.  An  experts  group  has  been  set  up  to 
assess the sustainability factor, but a proposal on the 
technical details is still pending. 

37 

 
 
 
 
the reincorporation of this group in the job market. 

CSR 3: Introduce a taxation system consistent with the 
fiscal  consolidation  efforts  and  more  supportive  of 
growth,  including  a  shift  away  from  labour  towards 
consumption  and  environmental  taxation.  In  particular, 
address  the  low  VAT  revenue  ratio  by  broadening  the 
tax base for VAT. Ensure less tax-induced bias towards 
to 
indebtedness  and  homeownership 
renting). 

(as  opposed 

CSR 4: Implement the reform of the financial sector, in 
particular  complement  the  on-going  restructuring of  the 
banking sector by addressing the situation of remaining 
weak institutions, put forward a comprehensive strategy 
to  deal  effectively  with  the  legacy  assets  on  the  banksʼ 
balance sheets, and define a clear stance on the funding 
and use of backstop facilities. 

labour  market  policies  by 

CSR  5:  Implement  the  labour  market  reforms  and  take 
additional  measures  to  increase  the  effectiveness  of 
active 
their 
targeting, by increasing the use of training, advisory and 
job matching services, by strengthening their links with 
passive  policies,  and  by  strengthening  coordination 
between  the  national  and  regional  public  employment 
services, 
job 
vacancies. 

information  about 

including  sharing 

improving 

The  2012-2014  Global  Employment  Strategy  for 
Older  Workers  has  not  yet  been  underpinned  by 
concrete measures, except for some progress in the 
recognition  and  accreditation  of  professional 
competencies based on work experience and formal 
and non-formal learning and revision of the rules on 
combining work and pension entitlements. 

Spain has implemented the CSR partially. 

With effect from September 2012, VAT rates were 
increased (the standard rate from 18 % to 21 %, and 
the  reduced  rate  from  8 %  to  10 %).  The  scope  of 
application  of  the  standard  VAT  rate  was  also 
extended  (second  set  of  measures  in  November 
2012). 

New environmental taxes (on electricity generation) 
were introduced in 2013. 

A  1 %  reduction  in  employers’  social  security 
contributions 
in  2013  and  2014  previously 
announced was postponed until further notice due to 
the  challenge  of  fiscal  consolidation.  The  abolition 
of  mortgage  payment  deductibility  was  adopted  in 
December 2012. 

Implementation  is  ongoing  in  the  framework  of 
the bank recapitalisation programme. 

Spain has implemented the CSR partially. 

Implementation  of  the  2012  labour  market  reform 
continues; its impact will be subject to an evaluation 
currently being developed by the government.  

The  Royal  Decree-Law  of  13  July  2012  on 
measures  to  ensure  budget  stability  and  promote 
competitiveness has strengthened the links between 
active  and  passive 
labour  market  policies, 
tightening  job-search  conditionality  and  revising 
conditions for unemployment assistance. 

New  measures  were  taken  in  the  area  of  ALMPs, 
namely  as  regards  youth  unemployment  and  the 
links  between  ALMPs  and  PLMPs.  Further  reform 

38 

 
 
 
CSR 6: Review spending priorities and reallocate funds 
to support access to finance for small and medium-sized 
enterprises  (SMEs),  research,  innovation  and  young 
people.  Implement  the  Youth  Action  Plan,  in  particular 
as  regards  the  quality  and  labour  market  relevance  of 
vocational  training  and  education,  and  reinforce  efforts 
to reduce early school-leaving and increase participation 
in vocational education and training through prevention, 
intervention and compensation measures. 

is considered urgent to increase employability.  

Coordination  between  the  national  and  regional 
public  employment  services  (PESs)  has  been 
improved  with 
the  measures 
the  adoption  of 
contained  in  the  RDL  4/2013,  which  sets  the 
conditions  for information  sharing  among  PES  and 
introduces  regulatory  changes  for  public-private 
cooperation  in  the  field  of  job  intermediation  and 
placement.  No  other  measures  have  been  taken  or 
announced  so  far  concerning  the  reinforcement  or 
modernisation of PES themselves. 

Spain has implemented the CSR partially. 

Following  the  work  of  the  youth  action  team,  € 
286.3  million  from  the  European  Social  Fund  and 
from  European  Regional 
€1026.9  million 
Development Fund have been reallocated.  

The  Youth  Employment  and  Entrepreneurship 
Strategy 2013-2016 (in the pipeline) will encompass 
around  100  short,  medium  and  long-term  measures 
to  support  education  and  training,  counterbalance 
youth unemployment and enhance entrepreneurship, 
with an overall budget of 3.5 billion.  

Early school leaving (ESL), although decreasing, is 
still  very  high  (25  %      in  2012).  Measures  to  fight 
ESL  have  been  maintained  in  2012  in  cooperation 
with  the  Autonomous  Communities,  but  funding  is 
no  longer  provided  in  the  2013  budget.    The  main 
objective  of 
the 
Improvement  of Quality  in  Education (LOMCE)  is 
also fight against ESL.  

the  draft  Organic  Law  for 

labour  market  reform  significantly 
The  2012 
amended 
and 
for 
the 
apprenticeship, and foundations were laid to launch 
a  dual  vocational  training  system  (Royal  Decree 
1529/2012 of November 2012).   

contract 

training 

The 2013 NRP does not provide for the reallocation 
of  public  spending  to  research  and  innovation, 
where no progress has been made since 2009. 

There is limited progress in relation to this CSR. 

The  2012  labour  market  reform  presented  a  set  of 
general measures tending to promote employability, 
but failed to take a specific approach to support the 
active  inclusion  in  the  labour  market  of  those 
furthest away from the labour market. No additional 
measures  have  been  announced  since  the  reform, 
except  for  the  revision  and  extension  of  the 

CSR 7: Improve the employability of vulnerable groups, 
combined  with  effective  child  and  family  support 
services  in  order  to  improve  the  situation  of  people  at 
risk of poverty and/or social exclusion, and consequently 
to achieve the well-being of children. 

39 

 
 
 
PREPARA  programme  until  unemployment  rates 
fall  below  20  %.  Spain  also  approved  a  National 
Strategy  for  the  Social  Inclusion  of  the  Roma 
Population 2012-2020 and an Action Plan on Drugs 
2013-2016,  but  budget  allocations  are  yet  to  be 
confirmed.  

Limited  progress  was  made  on  measures  to  tackle 
child  poverty  and  improve  the  efficiency  of  family 
support  services,  although  the  approval  in  April 
2013  of  the  Second  National  Strategic  Plan  for 
Children  and  Adolescents  2013-2016  (PENIA  II) 
gives a positive signal. 

There is limited progress in relation to this CSR. 

Submission  of  the  draft  Law  on  Professional 
Services has been repeatedly delayed. 

The  Entrepreneurship  Plan65  was  announced  in 
February  2013  and  confirmed  in  the  NRP  2013.  It 
comprises  several  measures  to  promote  business 
growth, 
and 
competitiveness, and  to ease access to finance. The 
measures  announced  are  being  formally  adopted66 
and 
introducing  more 
dynamism into the economy. 

should  contribute 

entrepreneurship, 

employment 

to 

CSR  8:  Take  additional  measures 
professional services, including highly regulated 

to  open  up  

professions, reduce delays in obtaining business licences 
and  eliminate  barriers  to  doing  business  resulting  from 
overlapping  and  multiple  regulations by different  levels 
of  government.  Complete 
the  electricity  and  gas 
interconnections with neighbouring countries 

and  address 
the  electricity 
comprehensive way, in particular by improving 

tariff  deficit 

in  a 

the cost efficiency of the electricity supply chain. 

The  first  draft  of  the  Market  Unity  Law  was 
approved by the Council of Ministers on 25 January 
2013. If the degree of ambition of the current text is 
maintained  through  the  adoption  process,  it  could 
help  to  eliminate  barriers  to  operating  across  the 
national 
simplify 
territory 
administrative requirements.  

further 

and 

to 

(e.g. 

tariff 

electricity 

deficit  was 

in  2012.  Measures  adopted 

around 
The 
in 
EUR 5 billion 
electricity 
December  2012 
generation), and more announced in February 2013 
(e.g. revised support for renewable energy sources) 
are  intended  to  reduce  the  deficit  in  2013  and  to 
finance  the  remainder  from  the  state  budget. 
Additional systemic measures are needed. 

taxes  on 

to 

improve  electricity 

Works 
interconnection 
capacity with Portugal and France are ongoing, but 
there  is  still  a  lack  of  integration  with  the  French 
energy  market.  This  means  that  the  potential  for 
trade  in  gas  and  electricity  to  boost  Spain’s 
economic growth is underexploited. 

65 Plan de Estímulo Económico y de Apoyo al Emprendedor. 
66 Various measures have been adopted already through Royal Decree Law 4/2013 of 22 February. 

40 

 
 
                                                 
Employment rate target: 74 % 

R&D target: 2 % 

Europe 2020 (national targets and progress)  

Employment rate population aged 20-65,  62.5 % in 
2010, 61.6 % in 2011 and  58.5 % in 2012 Q4 

In  2011,  Spanish  R&D  intensity  was  1.33  %.  The 
government R&D budget was reduced by 4.12 % in 
2010,  by  7.38  %  in  2011  and  by  25.6  %  in  2012 
(estimate subject to Eurostat calculation).   

Change  in  non-ETS  greenhouse  gas  emissions 
between 2005 and 2011: -10 %  

Greenhouse gas (GHG) emissions target:  

National  Target:  -10 %  (compared  to  2005  emissions, 
ETS emissions not covered by the national target) 

Renewable energy target: 20 % 

Share of renewable energy in all modes of the transport 
sector: 10 % 

Indicative  national  energy  efficiency  target  for  2020: 
20 %  energy  savings  to  be  achieved  in  2020.  This 
implies reaching a 2020 level of 135 Mtoe final/primary 
energy consumption in 2020. 

Early school leaving target: 15 % 

Tertiary education target: 44 % 

Risk  of  poverty  or  social  exclusion  target:  reduction  of 
1.4 -1.5 million people at risk 

41 

to 

the 

According 
latest  national  projections 
submitted  to  the  Commission  and  when  existing 
measures  are  taken  into  account,  the  target  is 
expected  to  be  missed:  -1  %  in  2020  compared  to 
2005 (with a projected gap of 9 percentage points). 

The  share  of  total  renewable  energy  in  gross  final 
energy consumption was 15.1 % in 2011 and 5.9 % 
in  the  transport  sector.  (Source:  Eurostat.  April 
2013.  For  2011,  only  formally  reported  biofuels 
compliant  with  Articles  17  and  18  of  Directive 
2009/28/EC are included.) 

of 

Spain  has  set  an 
indicative  national  energy 
efficiency  target  in  accordance  with  Articles  3  and 
the  Energy  Efficiency  Directive 
24 
(2012/27/EU).  However,  it  has  neither  expressed  it 
with  the  clarity  required  by  Article  3  of  Directive 
2012/27/EU, in terms of absolute primary and final 
energy  consumption,  nor  has  provided  information 
on  how  and  on  the  basis  of  which  data  the  target 
was calculated. 

leavers 

from  education  and 

training 
Early 
(percentage  of  the  population  aged  18-24  with  at 
most  lower  secondary  education  and  not  in  further 
education  or  training):  28.4  %  in  2010,  26.5  %  in 
2011  and  24.9  %  in  2012.  The  decreasing  trend 
since 2009is also due to the effect of the economic 
crisis. 

Spain  has  been  performing  well  with  regard  to  the 
Europe  2020  tertiary  educational  attainment  target. 
Tertiary educational attainment  40.6 % in 2010 and 
2011, and 40,1% 2012. 

The  number  of  people  at  risk  of  poverty  or  social 
exclusion was 11 675 000 in 2010 and 12 371 000 
in  2011.  No  progress  has  been  made  towards 
achieving the target, on the contrary. 

 
 
5. 

ANNEX 

Table I. Macroeconomic indicators 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General Government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2009

2010

2011

2012

2013

2014

3.7
-1.1
2.8
4.2
17.2
22.5
22.0

-4.2
64.7
-52.6
37.9
42.1
4.5

3.6
1.6
3.2
4.2
11.2
26.7
22.6

-0.4
52.5
-39.3
38.4
38.8
2.7

1.7
0.3
2.7
1.5
11.1
28.6
20.8

-2.0
42.6
-25.2
38.7
40.7
1.7

-0.3
-4.7
2.0
-0.6
20.1
22.3
18.4

-9.7
61.5
-40.2
36.6
46.3
1.9

0.4
-4.1
3.1
-1.9
21.7
21.1
17.8

-9.4
69.3
-49.5
35.7
45.1
2.5

-1.4
-4.6
2.4
-3.9
25.0
19.1
18.8

-10.6
84.2
n.a
36.4
47.0
3.0

-1.5
-4.6
1.5
-4.1
27.0
17.6
19.7

-6.5
91.3
n.a
36.8
43.3
3.3

0.9
-2.3
0.8
-0.4
26.4
17.3
20.7

-7.0
96.8
n.a
35.9
42.9
3.5

0.2

-3.2

-5.7

2.0

3.8

9.5

7.6

8.5

n.a
n.a
12.5
25.4

n.a
n.a
13.1
23.7

n.a
n.a
12.5
24.5

-89.1
0.4
13.6
20.6

0.9
n.a
35.5
2.8
23.4
5.3

-140.2
4.4
16.1
19.3

-124.8
13.2
13.5
22.5

-136.6
14.7
13.1
21.1

-104.3
3.1
15.4
19.4

3.9
75.2
38.1
3.3
22.8
8.8

0.2
86.4
37.7
3.6
19.8
8.3

2.4
70.9
37.1
3.0
22.8
7.2

0.2
100.9
38.1
4.0
19.8
7.4

4.0
114.3
38.5
3.8
20.8
8.9

Net financial assets; non-financial corporations
Net financial assets; financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.
2 The indicator on domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. 
The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

-3.2
91.5
-0.8
-2.0
0.5
44.6
47.3
9.3
102.3
97.8
104.6

-3.8
88.2
-2.2
-1.3
0.6
43.3
48.0
10.0
104.6
100.9
100.3

3.5
n.a
4.9
-1.3
0.6
n.a
n.a
n.a
92.9
95.8
114.1

-0.2
n.a
1.0
-1.1
0.6
45.4
46.5
8.4
95.4
95.6
108.9

0.2
27.7
-0.1
-0.9
1.1
50.2
41.3
8.4
92.8
96.1
100.7

-7.6
75.3
-5.2
-2.0
0.6
42.7
47.8
12.4
105.5
100.6
99.1

2.2
n.a
3.6
-1.2
0.6
n.a
n.a
n.a
94.7
95.6
112.9

-3.4
40.5
-2.8
-1.3
1.0
46.8
43.6
10.4
92.7
97.7
104.0

1.2
n.a
34.4
2.7
23.7
5.0

2.0
n.a
33.7
2.6
23.6
5.6

Source :
Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

42 

 
 
 
 
 
 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)

Private consumption (% change)

Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:

- Final domestic demand

- Change in inventories

- Net exports
Output gap1
Employment (% change)

Unemployment rate (%)

Labour productivity (% change)

HICP inflation (%)

GDP deflator (% change)

Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of the 
world (% of GDP)

2012

2013

2014

2015

2016

COM SP

COM SP

COM SP

-1.4

-2.1

-9.1
3.1
-5.0

-3.9

0.0

2.5

-4.6
-4.2

25.0

3.2

2.4

0.1

-0.3
-0.2

-1.4

-2.1

-9.1
3.1
-5.0

-3.9

0.0

2.5

-4.7
-4.2

25.0

2.9

2.4

0.1

-0.3
-0.2

-1.5

-3.1

-7.6
4.1
-4.0

-4.0

0.0

2.6

-4.6
-3.4

27.0

2.0

1.5

1.6

1.4
2.2

-1.3

-2.5

-7.1
4.1
-3.7

-3.7

0.0

2.4

-4.5
-3.5

27.1

2.4

1.7

1.4

1.1
1.9

0.9

-0.1

-1.1
5.7
2.0

-0.4

0.0

1.3

-2.3
0.0

26.4

0.9

0.8

1.0

0.1
3.5

0.5

0.0

-0.9
5.9
2.6

-0.8

0.0

1.3

-3.2
-0.2

26.7

0.6

1.6

1.4

0.4
2.9

SP

0.9

0.4

2.0
6.9
4.7

-0.1

0.0

1.0

-2.4
0.5

25.8

0.3

1.7

1.5

0.5
3.6

SP

1.3

0.8

4.3
7.1
6.2

0.6

0.0

0.7

-1.3
1.0

24.8

0.3

1.8

1.8

0.5
3.9

Note:
1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme 
scenario using the commonly agreed methodology.

Source :

Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

43 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

Revenue

of which:

- Taxes on production and imports

- Current taxes on income, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

of which:

Compensation of employees

Intermediate consumption

Social payments

Subsidies

Gross fixed capital formation

Other (residual)

- Interest expenditure

General government balance (GGB)

Primary balance

One-off and other temporary measures

GGB excl. one-offs

2

Output gap
Cyclically-adjusted balance2
Structural balance (SB)3
Change in SB

Two year average change in SB 
Structural primary balance3
Change in structural primary balance

Expenditure benchmark
Applicable reference rate4
Deviation5 (% GDP)
Two-year average deviation (% GDP)

Notes:

2012

2013

2014

2015

2016

COM COM

36.4

36.8

10.2

10.1

12.9

3.2

47.0

10.7

9.9

12.8

3.4

43.3

SP

37.0

10.8

10.4

12.5

3.2

43.3

COM1

35.9

10.6

9.2

12.5

3.6

42.9

SP

36.8

10.8

10.5

12.3

3.2

42.3

SP

37.1

10.9

10.8

12.2

3.2

41.2

SP

37.1

10.9

11.0

12.1

3.1

39.7

44.1

40.0

40.0

39.4

38.8

37.6

36.1

11.1

5.7

18.8

1.0

1.7

5.9

3.0

-10.6

-7.7

-3.0

-7.7

-4.6

-8.4

-5.5

1.8

1.0

-2.5

11.2

5.4

19.0

0.9

1.4

2.1

3.3

-6.5

-3.2

0.0

-6.6

-4.6

-4.3

-4.4

1.1

1.4

-1.0

1.5

10.9

5.4

18.9

1.1

1.5

2.2

3.3

-6.3

-3.0

0.0

-6.4

-4.5

-4.2

-4.3

1.2

1.5

-1.0

1.5

10.9

5.4

19.0

0.9

1.3

2.0

3.5

-7.0

-3.6

-0.4

-6.6

-2.3

-5.9

-5.5

-1.1

0.0

-2.0

-1.0

10.4

5.2

18.9

1.0

1.5

1.9

3.5

-5.5

-2.0

0.0

-5.4

-3.2

-3.9

-3.9

0.4

0.8

-0.4

0.6

9.8

4.9

18.6

0.9

1.4

1.8

3.6

-4.1

-0.5

0.0

-4.1

-2.4

-3.0

-3.0

0.9

0.6

0.6

1.0

9.3

4.6

18.3

0.9

1.3

1.7

3.6

-2.7

0.9

0.0

-2.7

-1.3

-2.1

-2.1

0.9

0.9

1.5

0.9

-0.19

-0.19

-0.19

-1.12

-1.12

-1.12

-1.12

-0.9

-1.2

-6.4

-3.6

-7.0

-4.1

1.1

-2.6

-1.8

-4.4

-1.0

-1.4

-0.5

-0.7

Change: 
2012-2016
SP

0.7

0.6

0.9

-0.8

-0.1

-7.3

-7.9

-1.8

-1.0

-0.5

-0.1

-0.4

-4.2

0.6

8.0

8.6

3.0

5.0

3.3

6.4

3.4

-

-

4.0

-

-

-

-

1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services on 
the basis of the programme scenario using the commonly agreed methodology.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.
4 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its 
M TO in year t. A lower  rate applies as long as the country is adjusting towards its M TO, including in year t.The reference rates applicable 
to 2014 onwards have been updated in 2013. 
5 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the 
applicable reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed 
methodology. A positive sign implies that expenditure growth exceeds the applicable reference rate. 

Source :

Stability programme (SP); Commission services’ 2013 spring forecasts (COM); Commission services’ calculations.

44 

 
 
 
 
Table IV. Debt dynamics 

(% of GDP)

Gross debt ratio1
Change in the ratio
Contributions 2 :

1. Primary balance
2. “S now-ball” effect

Of which:
Interest expenditure
Growth effect
Inflation effect

3. S tock-flow adjustment

Of which:
Cash/accruals diff.
Acc. financial assets

Privatisation

Val. effect & residual

Gap to the debt benchmark5,6
S tructural adjustment7
To be compared to:
Required adjustment8

Notes:

Average
2007-2011

52.2
5.9

4.7
1.3

1.9
0.0
-0.6
0.0

2012

84.2
15.0

7.7
3.9

3.0
1.0
-0.1
3.4

2013

2014

COM

91.3
7.1

3.2
3.2

3.3
1.2
-1.4
0.7

SP

91.4
7.2

3.0
3.1

3.3
1.1
-1.2
1.0

COM

96.8
5.5

3.6
1.7

3.5
-0.8
-0.9
0.2

SP

96.2
4.7

2.0
1.8

3.5
-0.5
-1.2
1.0

2015
SP

99.1
2.9

0.5
1.4

3.6
-0.8
-1.4
1.0

2016
SP

99.8
0.7

-0.9
0.6

3.6
-1.3
-1.7
1.0

2013

2014

2015

2016

2012

n.r.
n.r.

n.r.

COM / 
S P3

n.r.
n.r.

n.r.

S P4

n.r.
n.r.

n.r.

COM / 
S P3

n.r.
n.r.

n.r.

S P4

n.r.
n.r.

n.r.

S P

n.r.
n.r.

n.r.

S P

n.r.
n.r.

n.r.

1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth 
and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual 
accounting, accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in SP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the SP assuming growth follows the SP projections.
5Not relevant for M ember Sates that were subject to an EDP procedure in November 2011 and for a period of three years 
following the correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio 
does not comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing 
in November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State 
will comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary 
projections for the previous years are achieved.

Source :
Stability programme (SP); Commission services’ spring 2013 forecasts (COM); Commission services’ calculations.

45 

 
 
 
 
 
 
 
 
Table V. Sustainability indicators 

S2

of which:

Initial budgetary position (IBP)

Long-term cost of ageing (CoA)

of which:

Pensions

Health care

Long-term care

Others

S1 (required adjustment)*

of which:

Initial budgetary position (IBP)

Debt requirement (DR)

Long-term cost of ageing (CoA)

S0 (risk for fiscal stress)**

Debt,  % of GDP (2012)

Age-related expenditure, % of GDP (2012)

ES

EU27

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

5.6

3.7

1.9

2.3

1.2

0.4

-2.0

6.1

4.1

2.3

-0.3

2.1

0.4

1.7

2.3

1.1

0.4

-2.1

1.8

-0.8

2.9

-0.3

3.0

0.8

2.2

1.0

0.9

0.6

-0.4

2.2

0.0

1.9

0.3

0.45

84.2

23.9

:

87.0

25.8

1.3

-0.9

2.2

1.1

0.8

0.6

-0.3

0.5

-1.8

1.9

0.4

Note: 
The 'No-policy change' scenario depicts the sustainability gap under the assumption that the budgetary position 
evolves according to the Commissions' spring 2013 forecast until 2014. The 'Programme (SCP)' scenario depicts the 
sustainability gap under the assumption that the budgetary plans in the programme are fully implemented.                   
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.               
** The critical threshold for the S0 indicator is 0.44.

Source : 
Commission services; 2013 stability programme.                                                                                                   

46 

 
 
 
 
 
 
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)

34.2

36.8

33.0

30.7

32.1

31.4

2002

2006

2008

2009

2010

2011

Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

              - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth

     p.m.  Environmental taxes

2

3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

9.5

5.8

0.9

1.7

1.1

9.9

6.5

0.8

1.4

1.1

8.2

5.1

0.8

1.3

1.0

7.3

4.1

0.9

1.3

0.9

8.8

5.6

0.9

1.4

1.0

8.4

5.4

0.8

1.3

0.9

15.7

15.6

16.0

15.7

16.0

15.9

0.8

6.0

2.9

2.1

0.8

7.1

3.8

1.9

1.0

5.6

2.8

1.7

1.3

4.8

2.5

1.7

1.4

4.2

2.6

1.7

1.4

4.2

2.4

1.6

52.4

59.2

44.5

35.3

42.4

40.6

Note: 
1 Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission 
(2013) Taxation trends in the European Union, for a more detailed explanation.
2 This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.
3 The VAT efficiency is measured via the VAT revenue ratio. The VAT revenue ratio is defined as the ratio between the actual VAT revenue collected and the 
revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due 
to large exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection 
gap'). See European Commission (2012), Tax reforms in EU M ember States, European Economy 6/2012 and Taxation Papers 34/2012 for a more detailed 
explanation.

Source: Commission

47 

 
 
 
 
 
 
 
Table VII. Financial market indicators 

2008

2009

2010

2011

2012

Total assets of the banking sector (% of GDP)

313.4

328.9

330.9

340.5

341.6

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans)1),2)
              - capital adequacy ratio (%) 1)
              - return on equity (%) 1), 3)
Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)4)
Private debt (% of GDP)
Gross external debt (% of GDP)5)
            - Public
            - Private

Long term interest rates spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*
Notes: 

42.4

10.6

2.8
11.3

12.6

6.7

5.1

43.3

10.2

4.1
12.2

9.2

-1.0

0.1

44.3

…

4.7
11.9

7.9

1.3

0.9

48.1

…

6.0
12.4

3.0

-1.9

-1.2

…

…

7.1
11.4

-2.9

-7.5

-3.3

114.5

110.8

110.6

108.7

108.1

3.3

6.3

3.1

7.0

2.4

7.1

5.9

6.5

12.0

6.2

175.7

179.7

180.5

173.1

158.5

21.5
58.6

0.4

59.2

28.7
60.7

0.8

92.9

27.5
58.7

1.5

25.8
55.6

2.8

24.5
52.9

4.4

203.4

318.1

427.2

1) Latest data (June 2012).
2) Includes loans to private sector, public administration, other credit institutions, and nonresidents.
3) After extraordinary items and taxes. Includes only the net income attributable to the group.
4) Covered countries are CY, EL, LV, HU, IE, PT and RO.
5) Latest data 2012Q3.
* M easured in basis points.

Source :

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

48 

 
 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment (% of total employment, 
15 years and more)
Part-time employment of women  (% of women employment, 15 
years and more)
Part-time employment of men  (% of men employment, 15 years 
and more)
Fixed term employment (% of employees with a fixed term 
contract, 15 years and more)
Transitions from temporary 
to permanent employment
Unemployment rate1 (% of labour force, 
age group 15-74)
Long-term unemployment rate2 (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)
Youth NEET rate (% of population aged 15-24)

Early leavers from education and training (% of pop. 18-24 with at 
most lower sec. educ. and not in further education or training)

Tertiary educational attainment (% of population 30-34 having 
successfully completed tertiary education)
Formal childcare (from 1 to 29 hours; % over the population less 
than 3 years)
Formal childcare (30 hours or over; % over the population less 
than 3 year)
Labour productivity per person employed (annual % change)

Hours worked per person employed  (annual % change)
Labour productivity per hour worked (annual % change; constant 
prices)

Compensation per employee (annual % change; constant prices)

Nominal unit labour cost growth (annual % change)

Real unit labour cost growth (annual % change)

2007

2008

2009

2010

2011

2012

69.5

68.3

63.7

62.5

61.6

59.3

3.0

58.0

80.7

44.6

11.8

22.8

4.1

-0.1

58.3

78.1

45.6

12.0

22.7

4.2

-6.5

56.3

71.0

44.1

12.8

23.0

4.9

-2.5

55.8

69.1

43.6

13.3

23.2

5.4

-1.5

55.5

67.6

44.5

13.8

23.5

6.0

-4.3

54.1

64.5

44.0

14.8

24.5

6.6

31.7

29.3

25.4

24.9

25.3

23.6

5.4

8.3

1.7

18.2

12.2

31.0

39.5

24.0

16.0

0.5

-0.9

1.3

1.4

4.1

0.8

4.3

11.3

2.0

24.6

14.4

31.9

39.8

22.0

16.0

1.1

0.3

0.7

4.4

5.6

3.2

2.4

18.0

4.3

37.8

18.3

31.2

39.4

18.0

18.0

2.9

0.4

2.5

4.3

1.3

1.2

2.2

20.1

7.3

41.6

18.0

28.4

40.6

20.0

18.0

2.0

0.2

2.0

-0.4

-2.0

-2.4

1.6

21.7

9.0

46.4

18.5

26.5

40.6

20.0

19.0

2.2

0.6

1.4

-0.3

-1.5

-2.4

:

25.1

11.2

53.2

18.8

24.9

40.1

:

:

3.2

0.1

2.9

-0.6

-3.1

-3.1

Notes:
1 Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within 
two weeks. The labour force is the total number of people employed and unemployed.

2 Long-term unemployed are unemployed persons for at least 12 months.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

49 

 
 
 
 
 
Expenditure on social protection benefits (% of 
GDP)
Sickness/Health care

Invalidity

Old age and survivors

Family/Children

Unemployment

Housing and Social exclusion n.e.c.

Total

of which:  means tested benefits
Social inclusion indicators
At-risk-of-poverty or social exclusion1 
(% of total population)
At-risk-of-poverty or social exclusion of children 
(% of people aged 0-17)
At-risk-of-poverty or social exclusion of elderly 
(% of people aged 65+)
At-Risk-of-Poverty rate2 (% of total population)
Severe Material Deprivation3  (% of total population)
Share of people living in low work intensity households 4 (% of 
people aged 0-59)
In-work at-risk-of poverty rate (% of persons employed)
Impact of social transfers (excluding pensions) on reducing 
poverty
Poverty thresholds, expressed in national currency at constant 
prices5
Gross disposable income (households)
Relative median poverty risk gap (60% of median equivalised 
income, age: total)

2006

2007

2008

2009

2010

6.33

1.52

8.42

1.20

2.10

0.17

19.98

2.73

6.39

1.53

8.49

1.26

2.06

0.18

20.17

2.75

6.80

1.59

8.92

1.36

2.51

0.19

21.59

2.95

7.31

1.74

10.02

1.52

3.69

0.20

24.73

3.62

7.21

1.79

10.67

1.51

3.55

0.22

25.19

0.00

2007

2008

2009

2010

2011

23.1

26.4

29.7

19.7

3.0

6.3

10.7

17.6

22.9

26.3

28.2

19.6

2.5

6.2

10.7

18.7

23.4

26.2

26.1

19.5

3.5

7.0

11.4

20.1

25.5

29.8

22.6

20.7

4.0

9.8

12.7

26.3

27.0

30.6

22.3

21.8

3.9

12.2

12.3

26.8

7223

7555

7451

7318

6888

671161

716959

720945

700087

696592

24.1

23.6

27.7

30.6

30.8

Notes:
1 People at-risk-of poverty or social exclusion (AROPE): individuals who are at-risk-of poverty (AROP) and/or suffering from severe 
material deprivation (SM D) and/or living in household with zero or very low work intensity (LWI).
2 At-risk-of poverty rate (AROP): share of people with an equivalised disposable income below 60% of the national equivalised median 
income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or utility bills, ii) keep their 
home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein equivalent every second day, v) enjoy a week of 
holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour tv, or ix) have a telephone.

4 People living in households with very low work intensity: share of people aged 0-59 living in households where the adults (excluding 
dependent children) work less than 20% of their total work-time potential during the previous 12 months.

5 For EE, CY, M T, SI, SK, thresholds in nominal values in Euros; HICP -  index 100 in 2006 (2007 survey refers to 2006 incomes)

Sources: 
For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

50 

 
 
 
Table IX. Product market performance and policy indicators 

Performance indicators

2003-
2007

2008

2009

2010

2011

2012

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, steam and 
air conditioning supply (annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Total number of patent2 applications per million of 
labour force

-0.1

1.0

2.1

-2.1

3.0

0.8

-2.5

5.2

-10.5

2.2

9.6

3.1

2.0

3.8

3.8

3.0

n.a.

n.a.

-2.1

12.6

18.5

-1.9

11.5

n.a.

59.7

61.8

62.1

63.2

n.a.

n.a.

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2003-
2007
515

74

1.1

2008

2009

2010

2011

2012

515

47

1.4

515

47

1.4

515

47

1.4

515

28

1.3

37.2

39.8

39.4

40.6

40.6

510

28

n.a.

40.2

4.27

4.62

5.01

4.97

n.a.

n.a.

2007

2008

2009

2010

2011

2012

n.a.

n.a.

1.0

2.7

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

1.6

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1 Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Total number of patent applications to the European Patent Office (EPO) per million of labour force
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 

4 The methodologies of the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.
5 Aggregate Energy, Transport and Communications Regulation (ETCR).
*figure for 2007.

Source :
Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

51 

 
 
 
 
 
 
 
Table X. Green Growth 

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users**
Gas prices for medium-sized industrial users***
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS*
Transport energy intensity
Transport carbon intensity
Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €

%
HHI
HHI
%

2002-
2006

0.19
0.58
1.18
n.a.
-2.4%
n.a.
n.a.
12.5%
5.7%

0.20
9.6
n.a.
n.a.
n.a.
n.a.
36.8%
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

2007

2008

2009

2010

2011

0.18
0.55
1.18
n.a.
-3.1%
10
-0.9
10.8%
4.9%

0.18
9.3
0.10
0.03
0.02%
0.04%
39.0%
43.2%
0.69
1.75

79.6%
0.07
0.31
6.8%

0.18
0.50
1.01
0.19
-3.7%
10
6.3
9.6%
4.8%

0.18
9.1
0.10
0.03
0.03%
0.04%
48.3%
41.0%
0.65
1.64

81.3%
0.06
0.32
7.4%

0.17
0.47
0.84
n.a.
-2.4%
10
-1.6
9.7%
5.2%

0.17
8.5
0.11
0.03
0.03%
0.05%
42.1%
37.8%
0.63
1.58

79.2%
0.06
0.32
9.5%

0.17
0.46
n.a.
0.18
-3.0%
10
4.3
9.6%
5.0%

0.16
n.a.
0.11
0.03
0.03%
0.03%
42.1%
34.8%
n.a.
n.a.

76.8%
0.06
0.31
11.5%

0.17
n.a.
n.a.
n.a.
-3.6%
11
12.6
n.a.
n.a.

n.a.
n.a.
0.11
0.03
0.02%
0.03%
n.a.
37.9%
n.a.
n.a.

76.4%
n.a.
0.29
11.4%

Country-specific notes: 
The year 2012 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Electricity and gas prices medium industrial users: consumption band 500  - 2000M Wh and 10000 - 100000 GJ;  figures excl. VAT.
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transp industry gross value added (2005 EUR)
Transport carbon intensity:  greenhouse gas emissions in transport activity divided by gross value added of the transport sector
Energy import dependency: net energy imports divided by gross inland energy consumption incl. energy consumption international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share renewable energy in energy mix: %-share in  gross inland energy consumption, expressed in tonne oil equivalents

*Provisional data (15 April 213). Commission Services and EEA.

** For 2007 average of S1 & S2 for DE, LU, NL, FI, SE & UK. Other countries only have S2.

*** For 2007 average of S1 & S2 for IT, NL, FI, SE & UK. Other countries only have S2.

52