COMMISSION STAFF WORKING DOCUMENT Country Report Spain 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Spain, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 207 final  COMMISSION STAFF WORKING DOCUMENT Country Report Spain 2018  Including an In-Depth Review on the prevention and correction of macroeconomic imbalances  Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2018) 120 final}   
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the  Macroeconomic Imbalance Procedure 

In-Depth Review 

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Financial sector and private sector debt 

4.3.  Labour market, education and social policies 

4.4.   Investment 

4.5.  Public administration 

4.6.   Sectoral policies 

Annex A: Overview Table 

Annex B: Macroeconomic Imbalance Procedure Scoreboard 

Annex C: Standard Tables 

References 

1 

5 

12 

16 

24 

24 

30 

35 

47 

58 

60 

64 

68 

69 

75 

 
 
 
 
LIST OF TABLES 

Table 1.1: 

Key economic and financial indicators — Spain 

Table 2.1: 

Overall assessment of progress with 2017 CSRs 

Table 3.1: 

Current account balance and net international investment position sensitivity analysis 

Table 3.2: 

MIP Matrix 

Table 4.2.1: 

Financial soundness indicators, all banks. 

Table B.1: 

The Macroeconomic Imbalance Procedure  scoreboard for Spain ( AMR 2018) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1: 

Composition of GDP growth 

Graph 1.2: 

Contributions to potential growth 

Graph 1.3: 

Net lending / borrowing by sector 

Graph 1.4: 

Analysis of unit labour costs (ULC) 

Graph 1.5: 

Activity, unemployment, long-term unemployment, youth unemployment, NEET 

Graph 1.6.1.a: Regional disparities GDP per head1 

Graph 1.6.1.b:Drivers of regional disparities GDP per head 2 

Graph 1.6.2:  Spain — Breakdown of regional disparities in GDP per head (Theil index) 

Graph 1.6.3:  GDP per head and total factor productivity, the activity and the unemployment rates 

for NUTS-2 regions from DE, ES, IT, FR and NL. 2014 data1, 2 

Graph 2.1:  Overall multiannual implementation of 2011-2017 CSRs by February 2018 

Graph 3.1: 

Current account balance and net international investment position 

Graph 3.2: 

Analysis of the rate of change of NIIP — Spain 

Graph 3.3: 

External liabilities by sector-type of financial assets: change 2013-2017 

Graph 4.1.3:  Government revenue by category 

Graph 4.1.4:  Share of regions having complied with fiscal rules over 2013-2016 by GDP per head 

and by year (100% = 17 regions) 

Graph 4.1.5: 

Improvement in regional and local governments’ budget balance by component 

Graph 4.2.1:  Sources of financing of the Spanish economy 

Graph 4.2.2:  Loans to the private sector 

Graph 4.2.3:  Composition of debt — ES 

Graph 4.2.4:  Decomposition of y-o-y changes in debt-to-GDP ratios, households (ESA 2010) — 

Spain 

Graph 4.2.5:  Gap to the fundamental-based and prudential benchmarks, HH and NFC 

11 

13 

19 

21 

30 

68 

69 

70 

71 

72 

73 

74 

5 

5 

7 

7 

8 

9 

9 

10 

10 

12 

17 

18 

18 

28 

28 

29 

30 

31 

32 

32 

33 

 
 
 
Graph 4.2.6:  Decomposition of y-o-y changes in debt-to-GDP ratios, quarterly non-consolidate 

data, non-financial corporations (ESA 2010) — ES 

Graph 4.3.2:  Responsiveness of wages to unemployment by region 

Graph 4.3.3:  Responsiveness of wages to productivity developments and regional changes in 

unemployment by sector (2012-2016) 

Graph 4.3.4:  Employment by type 

Graph 4.3.5:  Characteristics of temporary employment 

Graph 4.3.6:  Share of temporary contracts in total employment by sector, ES v. EU 

Graph 4.3.7:  At risk of poverty and social exclusion and its subcomponents 

Graph 4.3.8:  At-risk-of-poverty gap 

Graph 4.3.9: 

In-work poverty by employment type 

Graph 4.4.1:  Change in the balance of trade goods and services: exports and imports contribution 

Graph 4.4.2: 

Import content of GDP components in Spain 

Graph 4.4.3:  ULC by sector 

Graph 4.4.7.a: Main determinants of Spanish exports 

and imports performance(1) 

Graph 4.4.7.b: Long term elasticities of imports (2) 

Graph 4.4.4:  Spain's productivity gap vs. average of Germany, France and Italy, 2010 EUR/hour 

Graph 4.4.8.1: Change in share of GVA (1.a) and exports as % of gross output (1.b) by sector 

Graph 4.4.8.2: Change in FTE employment (2.a), and change in productivity (2.b), by sector 

Graph 4.4.8.3: Change in share of employment and productivity (3.a), and productivity and sectoral 

reallocation (3.b) 

Graph 4.4.5:  Distribution of labour productivity growth in Spain (real value added by employee) 

Graph 4.4.6:  R&D intensity projections, 2000-2020 

LIST OF BOXES 

Box 1.6: Spain. Regional disparities in GDP per head 

Box 2.2: Tangible results delivered through EU support to structural change in Spain 

Box 3.4.1: Euro area spillovers 

Box 4.1.1: Medium-term projections of general government debt 

Box 4.1.2: The Spanish pension system — reforms and challenges 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 4.4.7: Assessing structural changes in Spanish exports and imports of goods and services: long-run 

elasticities to demand and competitiveness 

Box 4.4.8: Sectoral rebalancing in Spain 

Box 4.4.9: Investment challenges and reforms in Spain 

Box 4.6.1: Policy highlights 

33 

37 

37 

39 

40 

40 

43 

44 

45 

47 

48 

48 

49 

49 

49 

50 

51 

52 

52 

53 

54 

9 

15 

23 

25 

26 

36 

49 

51 

57 

63 

 
 
 
 
 
EXECUTIVE SUMMARY 

to 

the 

reinvigorate 

innovation  capacity  and 

is  an 
Spain's  continuing  strong  recovery 
opportunity 
reform 
momentum and  complete  earlier  achievements. 
Economic  activity  and  employment  grew  again 
strongly and imbalances further unwound in 2017. 
However, productivity is increasing slowly due to 
low 
in 
knowledge  and  skills;  and  strong  labour  market 
segmentation  and  uneven  social  policy  outcomes 
risk 
inequality. 
high 
Addressing  those  challenges  and  ensuring  full 
implementation  of  initiated  reforms  —  such  as  in 
product  markets  regulation  —  could  reduce  the 
risk  of  a  slowdown  should  the  external  economic 
environment  and  financial  conditions  become  less 
supportive (1). 

entrenching 

investment 

income 

The Spanish economy continued to grow above 
expectations and the euro area average in 2017. 
In  its  fourth  year of  expansion,  Spanish real  GDP 
surpassed  its  2008  pre-crisis  peak.  Economic 
growth  was  driven  by  domestic  demand,  in 
particular  private  consumption,  supported  by  high 
job  creation.  Investment,  especially  in  equipment, 
also  grew  robustly.  Exports  consolidated  their 
positive  contribution  to  growth,  supported  by  an 
increasing  internationalization  of  Spanish  firms 
and  further  cost-competitiveness  gains.  Overall, 
the  growth  of  economic  activity  continued  on  a 
more balanced pattern than before the crisis.  

in 

Growth  is  expected  to  decelerate  but  remain 
the 
robust.  Ambitious  structural  reforms 
aftermath  of  the  crisis  set  the  foundations  for  the 
strong recovery. However, other supporting factors 
- namely low oil prices and the stimulus from tax 
cuts  and  improving  financing  conditions  -  are  set 
is 
to  gradually  subside.  Private  consumption 
therefore  set  to  moderate  but  remain  a  robust 
driver of growth.  Investment growth is forecast to 
ease only slightly. 

(1)  This  report  assesses  Spain’s  economy  in  the  light  of  the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
resilient  and 
European  economy  more  productive, 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic policy - boosting investment, pursuing structural 
reforms  and  ensuring  responsible  fiscal  policies.  At  the 
the  Alert 
the  Commission  published 
same 
Mechanism Report (AMR) that initiated the seventh round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found  that  Spain  warranted  an  in-depth  review,  which  is 
presented in this report. 

time, 

1 

The  economic  rebalancing  progressed  further, 
but  high  debt  levels  and  unemployment  still 
represent  vulnerabilities.  External  debt  is  still 
very  high,  despite  the  continued  reduction  driven 
by  a  sustained  current  account  surplus.  Private 
sector debt reduction also progressed, only slowed 
down by new credit finally starting to grow again. 
The  public  debt  ratio  has  so  far  declined  slowly, 
leaving sustainability risks elevated in the medium 
term.  Unemployment  has  continued  its  rapid 
decline, but remains among the highest in the EU. 

represents  a 

source  of  potential 
Spain 
spill-overs  to  the  rest  of  the  euro  area. 
Simulations  show  that  a  decisive  implementation 
of  product  market  reforms  in  Spain  would  have  a 
limited but positive impact on the growth of other 
euro area countries.  

the 

2017 

between 

coordination 

Spain  has  made  overall  limited  progress  in 
country-specific 
addressing 
recommendations  (CSRs).  Spain  made  some 
progress in reforming public procurement, limited 
progress  in  strengthening  the  fiscal  framework, 
and some progress in undertaking a comprehensive 
spending  review.  Some  progress  was  achieved  in 
reinforcing 
public 
employment  services  and  social  services.  There 
was limited progress in promoting hiring on open-
ended  contracts,  addressing  disparities  in  income 
guarantee  schemes  and  improving  family  support, 
as  well  as 
labour  market 
relevance  of  tertiary  education  and  addressing 
regional  disparities 
in  educational  outcomes. 
Finally,  Spain  made  limited  progress  on  the 
implementation of the law on market unity and on 
and 
research 
some 
governance, 
improvement in the latter area. 

there  was 

investment 

innovation 

increasing 

although 

and 

the 

in 

Regarding  progress  in  reaching  the  national 
targets  under  the  Europe  2020  strategy,  Spain 
is  performing  well  in  reducing  greenhouse  gas 
emissions and on track to achieve its renewable 
energy  and  energy  efficiency  targets.  The 
tertiary education rate is close to the target. While 
sizeable  gaps  remain  concerning  the  employment 
rate  and  early  school  leaving,  they  were  again 
substantially reduced.  By  contrast,  there was  little 
progress  towards  the  targets  for  R&D  investment 
and reducing poverty risk. 

 
 
                                                           
Executive summary 

the  use  of 

indicators  of 

Spain faces challenges with regard to a number 
of 
the  Social  Scoreboard 
supporting the European Pillar of Social Rights. 
As  past  efforts  to  promote  employment  creation 
are  bearing  fruit, 
the  creation  of  permanent 
employment  is  slowly  increasing  in  prevalence, 
but 
temporary  contracts  remains 
widespread.  Income  inequality  stabilised  but  it 
remains relatively high. Early school leaving keeps 
improving but, together with a high risk of poverty 
among 
of 
opportunities.  The  shares  of  people  at  risk  of 
poverty and social exclusion and of young people 
not  in  employment,  education  and  training  are 
decreasing  but  call  for  close  monitoring.  The 
impact of social transfers (other than pensions) on 
poverty reduction is weak. 

children,  weighs 

equality 

on 

findings  of 

The  main 
review 
contained  in  this  report  and  the  related  policy 
challenges are as follows: 

in-depth 

the 

but 

stress, 

  Spain  does  not  face  immediate  risks  of 
fiscal 
medium-term 
sustainability risks remain high. The general 
government  debt  ratio 
is  still  high.  Its 
reduction is projected to slightly accelerate in 
2018-2019,  also  supported  by  strong  nominal 
GDP growth, but the debt ratio is expected to 
remain  around  95 %  of  GDP  in  the  medium 
age-related 
term.  Projected 
savings 
expenditure  attenuate 
fiscal  sustainability 
risks.  The  efficiency  of  some  spending  items 
may  benefit  from 
initiated 
spending  review  and  the  implementation  of  a 
new public procurement law. 

the  recently 

in 

  Private  debt  reduction  has  continued,  but 
certain  groups  of  firms  and  households 
remain highly indebted. Private debt both of 
companies  and  households  has  fallen  further 
overall.  Nominal  GDP  growth  is  increasingly 
driving  the  debt  ratio  reduction,  allowing 
credit 
firms, 
especially SMEs, to pick up in 2017. The still 
high level of indebtedness of some households 
and  non-financial  corporations,  in  particular 
low-income  and 
jobless  households  and 
companies  in  the  construction  and  the  real 
estate  sector,  reduces  their  ability  to  weather 
potential shocks.  

to  households  and 

flows 

2 

  Structural 

in 

of 

number 

regularly 

trade 
improvements 
performance  underpin  the  slow  reduction 
of  Spain's  external 
liabilities.  Exports' 
increasing  geographical  diversification  and  a 
rising 
exporting 
companies have led to gains in export market 
shares,  indicating  a  structural  shift  in  Spain's 
the 
export 
economy's  increased  reliance  on  domestically 
produced goods has restrained import growth. 
As  a  result,  in  2017,  the  current  account 
registered  a  surplus  for  the  fifth  consecutive 
year.  Current  account  surpluses  will  need  to 
be sustained for an extended period of time to 
decisively  bring  down  the  still  very  high 
external liabilities.  

performance. 

Furthermore, 

to 

further 

increase 

the  past 

  Employment continued to grow at a robust 
pace  and  unemployment 
fell 
rapidly, but is still very high. The strength of 
the labour market recovery is partly due to the 
reforms  and  wage 
impact  of 
moderation.  Both  helped 
the 
responsiveness  of  employment  to  economic 
growth.  However,  the  unemployment  rate 
remains among the highest in the EU. This is 
especially  true  for  young  people,  implying  a 
considerable untapped skills potential. Almost 
half  of  the unemployed  have been jobless for 
more  than  a  year.  Spain  is  stepping  up 
activation  policies  targeting  the  long-term 
unemployed,  young  people, 
and  older 
their  effectiveness 
workers.  Nevertheless, 
public 
largely 
on 
employment 
and 
services' 
coordination  with  employers  and  social 
services, which is only slowly improving. 

capacity 

regional 

depends 

non-tradable 

  Productivity has grown in some sectors, but 
weak innovation and investment entrenches 
the  productivity  gap  between  the  best  and 
worst performers. Since the recovery started, 
productivity  has  grown  more  in  the  tradable 
than 
in 
manufacturing  and  services.  In  some  tradable 
sectors — where Spain has some competitive 
advantage  —  productivity  growth  compares 
favourably  with  other 
large  euro  area 
countries.  Still,  the  productivity  performance 
very 
across 
heterogeneous, which can be partly explained 
by weaknesses in innovation capacity and, to a 

firms  within 

sectors, 

sectors 

both 

is 

 
 
Executive summary 

lesser  extent,  investment  in  knowledge-based 
capital. 

a  challenge,  which  recent  initiatives  have 
started to address. 

Other key structural issues analysed in this report, 
which  point  to  particular  challenges  for  Spain's 
economy, are the following: 

  Spanish banks continued their stabilisation, 
while  access  to  finance  improved.  The 
banking system as a whole comfortably meets 
the  regulatory  capital  requirements  and  non-
performing  loans  have  been  further  reduced. 
The successful resolution of one bank in June 
2017 contributed to strengthening the stability 
of  the  financial  sector.  Policies  to  support 
equity funding are proving effective. 

training  and 

inequality.  While 

  The widespread use of temporary contracts 
negatively  affects  productivity  growth  and 
income 
permanent 
contracts  are  on  the  rise  amongst  newly 
employed workers, the share of employees on 
temporary  contracts  is  still  high.  Young  and 
low-skilled  workers  are  most  affected  by 
temporary  employment,  which  often  fails  to 
lead to a permanent job. This outlook reduces 
incentives for workers and employers to invest 
in 
thus 
eroding  human  capital  formation,  which  in 
turn 
impedes  faster  productivity  growth. 
Moreover,  temporary  workers  are  at  a  higher 
risk  of  poverty  and  tend  to  accumulate  lower 
is 
entitlements 
fighting the abuse of temporary contracts with 
growing  success  and  plans  to  increase  the 
the  public 
share  of  permanent  posts 
administration.  However, 
to 
promote  open-ended  contracts  in  the  private 
sector have so far had only small effects. 

to  social  benefits.  Spain 

in 
incentives 

lifelong  education, 

  Skills  mismatches  and  gaps  in  educational 
outcomes  also  weigh  on  productivity 
growth. Tertiary graduates face difficulties in 
finding  adequate  jobs,  and  both  over-  and 
under-qualification  are  widespread  in  Spain. 
Though  decreasing,  the  early  school  leaving 
rate  remains  amongst  the  highest  in  the  EU 
and  educational  outcomes  continue  to  vary 
considerably  across  regions.  A  high  share  of 
teachers  is  recruited  on  temporary  contracts. 
The teaching and acquisition of digital skills is 

3 

  The  social  situation  continued  to  improve 
with economic and job growth, but income 
inequality  and  the  share  of  population  at 
risk  of  poverty 
remain  high.  The 
employment  situation  of  household  members 
plays  an  important  role  in  this  context.  In 
2016,  the  share  of  people  at  risk  of  poverty 
and  social  exclusion  again  decreased  slightly, 
but  remains  high  especially  for  jobless  and 
single-earner  households,  as  well  as  for 
children.  In  addition,  family  policies  and 
social  benefits,  notably  income  guarantee 
schemes,  suffer  from  uneven  coverage  and 
low  effectiveness.  High  levels  of  income 
inequality,  early  school  leaving  and  child 
poverty  may  negatively  affect  the  equality  of 
opportunities. 

  While  public  procurement  and  the  fight 
against  corruption  saw  progress,  advances 
to  improve  the  business  environment  have 
slowed  down.  The  law  on  market  unity, 
subject of several rulings by the Constitutional 
Court in 2017, is still to be fully implemented. 
Regulatory  disparities  and  restrictions  keep 
mark-ups  high,  geographical  mobility  of 
companies and workers low, and productivity 
growth  restrained.  By  contrast,  a  new  law  on 
public  procurement,  if  implemented  well,  is 
the  efficiency  and 
likely 
transparency  of  public  procurement.  The 
justice  system's  efficiency  is  being  increased 
and  the  implementation  of  anti-corruption 
laws is making the business environment more 
justice 
the 
attractive.  The  perception  of 
system's independence has improved. 

improve 

to 

investment 

  The innovation performance remains weak, 
despite  governance  improvements.  Public 
and  private 
in  R&D  remains 
subdued.  Low  capacity  of  small  and  medium 
enterprises  to  adopt  innovations  and  take 
advantage  of  digitisation  is  a  drag  on  Spain's 
longer-term  productivity  growth.  Governance 
of 
innovation  has  been 
streamlined  and  made  more  inclusive,  but 
coordination  between  government  levels  is 
still  uneven  and 
lack  of  systematic 
the 
evaluations prevents policy learning. 

research  and 

 
 
  Cross-border 

and 

energy 
transport 
connections, as well as water infrastructure, 
face  investment  gaps.  Bottlenecks  at  Spain's 
borders impede a closer integration in the EU 
electricity  and  gas  markets  and  slow  down 
trade  flows.  Water  governance 
is  being 
improved,  but  there  is  underinvestment  in 
supply and wastewater infrastructure. 

Executive summary 

4 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Economic growth 

growth 

continued 

Economic 
exceeding 
expectations in 2017. The volume of GDP finally 
surpassed  its  pre-crisis  peak  in  the  second  quarter 
of  2017,  and  growth  remained  robust  in  the  third 
quarter,  at  0.8 %  q-o-q.  According  to  the  GDP 
flash  estimate,  growth  slightly  decreased  to  0.7% 
q-o-q during the fourth quarter, bringing the annual 
growth  rate  for  2017  to  3.1%.  The  expansion  is 
underpinned  by  a  more  balanced  growth  pattern 
than  before  the  crisis.  Domestic  demand,  and 
specifically private consumption, remains the main 
driver  of  growth,  but  net  exports  have  also  been 
contributing  firmly  to  growth  since  2016.  The 
strength of the recovery and of job creation partly 
reflects  the  impact  of  the  structural  reforms 
implemented  in  the  early  years  of  the  crisis,  in 
particular  the  financial  sector  and  labour  market 
reforms.  

Graph 1.1:  Composition of GDP growth 

Source: European Economic Forecast, autumn 2017 

As  favourable  tailwinds  subside,  growth  is 
expected  to  decelerate  but  remain  robust.  Real 
GDP  growth  is  forecast  to  moderate  to  2.6 %  in 
2018  and  2.1 %  in  2019  (see  Graph 1.1). (2) 
Private  consumption  is  expected  to  slow  down  as 
job  creation  decelerates  and  the  tailwinds  that 
supported  the  growth  of  disposable  income  in 
recent years - i.e. declining oil prices, tax cuts and 

(2)  GDP  growth  and  inflation  forecasts  are  based  on  the 
Commission  2018  interim  winter  forecast.  All  other 
variables  and  GDP  components  are  based  on 
the 
Commission 2017 autumn forecast 

5 

improving  financial  conditions  -  abate.  However, 
private consumption is still projected to remain the 
main  contributor 
to  growth  until  2019,  as 
disposable  income  continues  to  increase  and  the 
financial  position  of  households  improves.  After 
decelerating  in  2016,  growth  of  investment  is 
expected  to  have  rebounded  in  2017,  driven  by 
residential  construction.  It  is  then  set  to  ease 
slightly 
in  2018  and  2019,  as  equipment 
investment  growth  moderates  in  line  with  final 
demand.  Downward 
the  outlook 
nevertheless  exist,  as  uncertainty  linked  to  the 
political  situation  in  Catalonia  could  have  a 
negative  impact  on  growth,  the  size  of  which 
cannot  be  anticipated  at  this  stage.  At  the  same 
time,  a  stronger  than  expected  recovery  in  other 
euro  area  countries  is  an  upside  risk  for  export 
growth. 

risks 

to 

Graph 1.2:  Contributions to potential growth 

Source: European Commission 

to 

is  projected 

Potential  growth 
increase 
slightly. After plummeting during the crisis years, 
potential output growth has started to recover, and 
is  estimated  to  reach  1.2 %  in  2019,  but  still 
remaining  below  the  euro  area  average  (1.5 %) 
(see  Graph 1.2).  More  than  half  of  this  increase 
can be explained by a higher contribution of labour 
to  potential  output  growth.  Whereas 
the 
contribution of capital and total factor productivity 
(TFP)  to  potential  output  is  now  in  line  with  the 
euro area average, the contribution of labour is still 
lower  on  account of  a  slowly declining,  structural 
unemployment rate (NAWRU). 

-10-8-6-4-202410111213141516171819ppsPrivate consumptionPublic consumptionGFCFNet exportsInventoriesReal GDP (y-o-y%)% of potential GDPforecast-2.0-1.00.01.02.03.04.0050607080910111213141516171819Rate of change y-o-y (%)Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growth 
 
 
                                                           
 
External position 

structural 

improvements 

The  external  sector  is  expected  to  continue 
contributing  to  GDP  growth  until  2019.  Since 
2016,  import  growth  has  remained  contained, 
despite  strong  growth  of  domestic  demand  and 
accelerating  exports,  pointing  to  a  reduction  in 
import  propensity  (see  Box 4.4.1).  At  the  same 
export 
time, 
performance, underpinned by cost-competitiveness 
gains  and  an  increase  in  the  number  of  regular 
exporters,  have  contributed  to  sizeable  gains  in 
market  shares  in  recent  years.  Both  exports  and 
imports  are  expected  to  have  accelerated  in  2017 
as  Spain's  export  markets  recovered,  before 
moderating 
in  2018  and  2019.  Exports  are 
expected  to  continue  outpacing  imports,  and  net 
trade  should  make  a  positive  contribution  to 
growth until 2019.  

in 

In  2017,  the  Spanish  economy  registered  a 
current  account  surplus  for  the  fifth  year  in  a 
row. The current account surplus, after increasing 
in  2016,  is  expected  to  remain  broadly  stable  at 
almost 2 % over the period 2017-19, as swings in 
the  terms  of  trade  due  to  oil  price  increases  are 
largely  offset  by  changes  in  export  and  import 
volumes. Given its large net stock of external debt, 
reductions in the cost of debt in recent years had a 
income  balance. 
positive 
However,  the  scope  for  additional  improvements 
seems contained, as interest rates are not expected 
to reduce further. In cyclically-adjusted terms, the 
current  account  has  continued  to  improve,  again 
suggesting that the external surplus is increasingly 
driven by structural factors. 

impact  on  Spain's 

are 

(partly 

account 

reflecting 

surpluses 

improvements 

slowly 
Current 
translating  into  a  reduction  of  Spain's  net 
external  liabilities.  Despite  the  current  account 
surpluses registered since 2013, negative valuation 
in 
effects 
confidence and higher value of Spanish assets) are 
limiting  the  improvements  in  the  net  international 
investment  position  (NIIP).  Still,  the  NIIP  has 
improved  by  more  than  16  pps  of  GDP  since  its 
peak,  but  at  -83.2 %  of  GDP  in  Q3-2017,  it 
remains very negative. Changes in the structure of 
external  liabilities  in  recent  years  in  terms  of 
sectors (e.g. being increasingly composed of public 
type  of 
sector  and  central  bank 
instruments  (e.g.  a  higher  share  of  equity  than  in 
the  past),  and  maturity  (e.g.  longer  maturity  of 

liabilities), 

1. Economic situation and outlook 

some  of 

public  debt), 
the 
can  mitigate 
vulnerabilities  associated  with  a  highly  negative 
NIIP.  Going  forward,  the  strong  GDP  growth, 
pickup  in  inflation  and  net  external  surpluses 
projected  until  2019  should  facilitate  further 
improvements of the NIIP (See Section 3.2). 

Private and public debt 

in  private  sector  debt 

The  reduction 
is 
progressing  but  has  slowed  down.  Despite  its 
rapid decline, private sector debt remains high and 
deleveraging needs remain for both corporates and 
households  (see  Section  4.2).  Nominal  GDP 
growth  has  now  become  the  main  driver  of  the 
reduction in debt ratios. The deleveraging process 
has  slowed  down  as  new  credit  is  growing 
strongly,  especially  for  households  and  SMEs. 
Debt reduction, however, is taking place at a faster 
speed  than  suggested  by  fundamentals  for  both 
companies  and  households,  indicating  the  excess 
of  debt  accumulated  in  the  past  is  unwinding  at  a 
sufficient  pace  (European  Commission  2017)  (see 
Chapter 4.2). 

The reduction of public sector debt is expected 
to gather pace. The general government debt ratio 
is expected to decline from 99 % in 2016 to about 
95.5 % in 2019. After narrowing to 4.5 % of GDP 
in  2016,  Spain’s  general  government  deficit 
continued to decrease in the first three quarters of 
2017,  by  1.4  pps  (see  Graph 1.3).  This  reduction 
has  relied  on 
improved  macroeconomic 
outlook but also on restraint on public expenditure 
growth.  For  the  year  as  a  whole,  a  general 
government  deficit  of  3.1 %  of  GDP  is  expected. 
At  unchanged  policies,  the  deficit  is  expected  to 
narrow  to  2.4 %  and  1.7 %  of  GDP  in  2018  and 
2019, 
is 
expected to narrow from 3.3% of GDP in 2016 to 
3.1%  of  GDP  in  2017  and  then  remain  almost 
unchanged in the two subsequent years. 

respectively.  The  structural  deficit 

the 

Inflation 

(HICP) 

in  2016, 

Core inflation is expected to gradually increase. 
After  negative  growth  in  the  harmonised  index  of 
consumer  prices 
inflation 
rebounded strongly in the first half of 2017 due to 
the 
inflation 
moderated  in  the  second  half  of  last  year  to  an 
annual average of 2 % in 2017, and is expected to 
decline further in 2018 and 2019 on account of oil 
price developments.  Core  inflation should recover 

in  oil  prices.  HICP 

increase 

6 

 
1. Economic situation and outlook 

gradually  over  2018  and  2019  as  wages  pick  up 
and the output gap turns firmly positive.   

Graph 1.4:  Analysis of unit labour costs (ULC) 

Graph 1.3:  Net lending / borrowing by sector 

Source: AMECO, European Commission 

Source: AMECO 

Labour market 

The 
labour  market  situation  continues  to 
improve,  supported  by  wage  moderation  and 
the  labour  market  reforms  implemented  in 
previous  years.  Employment  is  expected  to  have 
expanded by 2.7 % in 2017. It is then projected to 
decelerate  but  remain  robust  at  2.1 %  and  1.7 % 
this  year  and 
respectively.  The 
in  2019, 
unemployment  rate  keeps  decreasing,  down  to 
16.6 %  in  Q4-2017  from  18.6 %  one  year  earlier, 
and is expected to fall to about 14 % by 2019. The 
recovery in the labour market has also allowed for 
a  reduction  of  disparities  in  GDP  per  head  across 
Spanish 
remaining 
subdued  until  2017,  nominal  wage  growth  is 
expected  to  gradually  increase  in  2018  and  2019, 
as  the  cyclical  slack  in  the  economy  narrows. 
Productivity is expected to grow only moderately, 
leading to modest increases in nominal unit labour 
costs  (ULC)  until  2019  (Graph 1.4).  However, 
further cost competitiveness gains are expected, as 
ULC are projected to grow more slowly than in the 
rest of the euro area. 

(Box 1.6).  After 

regions 

A high level of labour market segmentation and 
long-term  unemployment  act  as  a  drag  on 
potential  growth.  The  youth  unemployment  rate 
has progressively decreased (from 53 % in 2014 to 
37.5  %  in  Q4-2017),  and  so  has  the  long-term 
unemployment rate (from 12.9 % in 2014 to 7.1 % 
in  Q3-2017)  (Graph 1.5).  However,  both  rates 
continue  to  be  among  the  highest  in  the  EU, 
suggesting 
that  unemployment  has  become 
entrenched  at  least  for  some  among  these  groups. 
At the same time, the proportion of employees on 
temporary 
total 
employment has continued to rise by 0.3 pps year-
on-year up to 26.8 % in Q4-2017, and is amongst 
the largest in the EU. However, the share of open-
ended  contracts 
in  net  employment  growth 
increased to 54 % on average in 2017, although the 
longer  term  impact  on  the  overall  share  of 
temporary employment cannot be assessed yet. 

contracts 

relative 

the 

to 

Poverty, inequality and social inclusion 

exclusion  declined 

Though declining, the share of the population at 
risk of poverty or social exclusion remains high. 
The  proportion  of  people  at  risk  of  poverty  or 
social 
second 
consecutive  year  in  2016  (based  on  2015  income 
(3)), reaching 27.9 % of the total population, but it 
remains well above the 2008 level of 23.8 %. The 
decrease  owes  to  a  drop  in  severe  material 
deprivation  and  in  the  share  of  people  living  in 
households  with  very  low  or  low  work  intensity, 

the 

for 

(3) 

 Income data from EU-SILC in a given release refer to the 
previous year for all Member States except IE and UK. 

7 

-15-10-50510150102030405060708091011121314151617*18*% of GDPHouseholds and NPISHGeneral government-4-20246802030405060708091011121314151617*18*19*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in Euro Area 
 
 
                                                           
1. Economic situation and outlook 

which despite having improved, remains very high. 
The  share  of  people  at  risk  of  monetary  poverty 
remained stable in 2015 at 22 %, and much higher 
than  the  EU  average.  Flash  estimates (4)  indicate 
that  for  Spain  no  significant  changes  in  this 
indicator  are  expected  for  the  income  year  2016. 
Although  improving,  challenges  remain  in  the 
situation of children and young people as reflected 
by  the  high  shares  of  early  school  leavers,  young 
people  not  in  employment,  education,  or  training, 
and  children  in  poverty.  Work  intensity  is  one  of 
the  most 
important  drivers  of  poverty  and 
inequality. 

Graph 1.5:  Activity, unemployment, long-term 

unemployment, youth unemployment, NEET 

(1) Activity rate and Employment rate(% of population), 
ages 20-64. (2) Unemployment rate and long-term 
unemployment rate (% of labour force), ages 15-74. (3) 
Youth unemployment rate (% of labour force), ages 15-24. 
(4) NEET: Not in employment, education or training (% of 
population), total, ages 15-24 
Source: Eurostat, LFS. 

Income 
inequalities  remain  high  and  real 
income growth is lower than GDP growth. Since 

(4)  To  provide  timelier  data  on  the  effectiveness  of  social 
flash 
policies,  Eurostat  has  produced  experimental 
estimates 
reference  year  2016.  These 
complement  the  EU-SILC  data  and  can  be  used  in 
preliminary analysis until the final EU-SILC data becomes 
available. 

income 

for 

the 

started, 

recovery 

income  quintile 

the 
real  gross  household 
disposable  income  (between  2014  and  2017)  has 
grown more slowly than GDP and social indicators 
point at various vulnerabilities. Income inequality, 
as  measured  by 
ratio, 
registered  a  slight  decline  in  2016  (based  on 
income from 2015), but continues to be one of the 
highest in the EU, as the richest 20 % share of the 
population earns about 6.6 times more income than 
the bottom 20 %. Inequality is mainly driven by a 
high  unemployment  rate,  skills  polarisation  and 
labour market segmentation. It is especially high at 
income  distribution.  The 
the  bottom  of 
redistributive power of the tax and benefits system 
is  relatively  low  compared  to  other  EU  Member 
States.  It  reduces  income  inequality  by  only 
34.6 %,  as  measured  by  comparing  the  Gini 
coefficients (5) of market income (i.e. before taxes 
and  transfers)  and  disposable  income  (i.e.  after 
taxes and transfers), below the EU average of 40%.  

the 

(5)  The Gini coefficient ranges between 0 and 1. Lower values 
indicate higher equality. To take into account differences in 
household  size  and  composition,  the  total  disposable 
household income is "equivalised". 

8 

62646668707274767880010203040506001020304050607080910111213141516%%Activity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-24 (lhs) 
 
                                                           
                                                           
1. Economic situation and outlook 

Box 1.6: Spain. Regional disparities in GDP per head 

GDP per head is unevenly distributed across regions. Disparities in GDP per head in Spain fell steadily 
before the start of the 2008 global crisis, increased after 2008 and declined again slightly in 2015. Despite 
the post-2008 increase, regional disparities are lower than in Italy and France and broadly similar to those in 
Germany  (Graph  1.6.1.a).  (1)  Especially  for  France,  dispersion  in  GDP  per  capita  as  measured  by  the 
weighted  coefficient  of  variation  is  driven  by  the  capital  region,  which  is  richer  and  more  populated  than 
other regions. 

The  contribution  of  employment  and  productivity  to  disparities  in  GDP  per  head  varies  across 
countries.  GDP  per  head  is  the  product  of  output  per  worker  (i.e.,  productivity)  times  the  ratio  of 
employment to total population (i.e., the employment rate), which can be broken down into the share of the 
working  population,  the  activity  rate  and  the  share  of  the  active  population  that  is  employed  (which  is 
inversely related to the unemployment rate). While productivity plays a big role in explaining disparities in 
GDP  per  head  between  regions  in  Germany,  France  and  the  Netherlands,  the  employment  rate  is  more 
influential in Spain and Italy (Graph 1.6.1.b).  

Graph 1.6.1.a:  Regional disparities GDP per head1 

Graph 1.6.1.b:Drivers of regional disparities GDP per head 2  

1)  Coefficient  of  variation  weighted  by  the  population  in  each  region,  i.e.,  the  ratio  of  the  weighted  standard 
deviation  to  the mean.  A  downward  trend  in  the coefficient  of variation  stands  for  reduced  dispersion in  GDP  per 
head across regions over time.  
(2) Based on the Theil(0) index, which is qualitatively very similar to the weighted coefficient of variation and strongly 
correlated with it over time within countries, while allowing decomposing inequality into its determinants. Here, the 
following decomposition of GDP per capita is performed: labour productivity (ALP), the share of working age 
population (SWP), the activity rate (AR) and the share of the active population that is employed (1-U).  

Source: European Commission 

Differences in employment rates across Spanish regions are the main driver of disparities in GDP per 
head.  The  lower  dispersion  in  GDP  per  capita  in  2008  compared  to  2000,  as  shown  in  Graph  1.6.1.a,  is 
largely due to some regional convergence in the employment rate, and in particular the share of the active 
population that is employed. Similarly, the higher dispersion in GDP per capita after 2008 is attributable to 
the asymmetric impact of labour shedding across regions (Graph 1.6.2). The recovery in the labour market 
started in 2014 has led to the small decline of disparities in GDP per capita in Spain, which remain larger 
than in the pre-crisis period.  

9 

 
 
 
 
 
 
 
1. Economic situation and outlook 

Graph 1.6.2: 

Spain — Breakdown of regional 

disparities in GDP per head (Theil index)  

the 

In  most  Spanish  regions,  productivity  was 
relatively  low  and  unemployment  relatively 
high  in  2014.  Several  regions  in  Spain  recorded 
total  factor 
lowest  values  for 
some  of 
productivity,  with  no  region  appearing  in  the 
group  of  high  productivity  regions  (Graph  1.6.3). 
Even more strikingly, no region recorded a below-
EU  average  unemployment  rate.  In  addition, 
unemployment  rates  are  highly  dispersed  across 
regions 
regional 
unemployment rate is more than twice the rate of 
the 
lowest  unemployment. 
Regional  disparities  in  the  labour  market  are 
mirrored  by  disparities  in  other  welfare  variables 
such  as  the  share  of  people  at  risk  of  poverty  or 
social exclusion. 

region  with 

largest 

Spain: 

the 

the 

in 

1) Coefficient of variation (CV) weighted by the 
population in each region. See note 1 of Graph 1a.  
Source: Eurostat and European Commission 

Graph 1.6.3: 

GDP per head and total factor productivity, the activity and the unemployment rates for NUTS-2 

regions from DE, ES, IT, FR and NL. 2014 data1, 2 

(1) The blue dots show the regions for DE, FR, IT and NL. In yellow, the 17 Spanish regions. The dotted lines show the 
average of the variables.  
(2) For the purposes of this Graph, the labour productivity component of GDP per head (see note 2 to Graph 1b) is 
further broken down into total factor productivity (TFP) and capital deepening (K/L).  
Source: Eurostat and European Commission 

(1)  In  this  box,  regional  dispersion  is  measured  for  the  17  regions  in  Spain  and  for  the  NUTS-2  regions  of  DE,  FR 

(including the overseas departments and territories), IT and NL.  

10 

010 00020 00030 00040 00050 00060 00070 00020 00030 00040 00050 00060 000GDP per head (PPS)Total  Factor Productivity (PPS)010 00020 00030 00040 00050 00060 00070 00040%50%60%70%80%90%100%GDP per head (PPS)Activity  rate  010 00020 00030 00040 00050 00060 00070 0000%10%20%30%40%GDP per head (PPS)Unemployment  rate 00.0050.010.0150.020.0250.03000102030405060708091011121314151-uActivity RateShare of Working PopulationApparent Labour ProductivityGDP pc 
 
 
 
  
 
 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators — Spain 

(1)  NIIP excluding direct investment and portfolio equity shares  
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.  
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise) 

11 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)3.7-1.3-0.23.43.33.12.62.1Potential growth (y-o-y)3.60.9-0.50.30.70.91.01.2Private consumption (y-o-y)3.8-2.0-0.83.03.0...Public consumption (y-o-y)5.81.3-1.22.10.8...Gross fixed capital formation (y-o-y)6.1-8.40.56.53.3...Exports of goods and services (y-o-y)4.80.94.34.24.8...Imports of goods and services (y-o-y) 8.5-5.23.05.92.7...Contribution to GDP growth:Domestic demand (y-o-y)4.9-3.1-0.63.42.6...Inventories (y-o-y)0.00.00.00.40.0...Net exports (y-o-y)-1.31.80.5-0.40.7...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.6-0.2-0.7-0.20.00.10.10.1Capital accumulation (y-o-y)1.70.70.10.20.30.30.40.5Total factor productivity (y-o-y)0.20.40.10.30.40.50.60.6Output gap2.7-4.0-8.2-4.6-2.2-0.11.42.3Unemployment rate9.219.125.322.119.617.415.614.3GDP deflator (y-o-y)3.80.50.10.60.30.91.61.4Harmonised index of consumer prices (HICP, y-o-y)3.22.30.7-0.6-0.32.01.61.5Nominal compensation per employee (y-o-y)3.92.50.71.6-0.30.51.21.4Labour productivity (real, person employed, y-o-y)-0.21.70.60.70.7...Unit labour costs (ULC, whole economy, y-o-y)3.50.4-0.31.4-0.60.20.70.8Real unit labour costs (y-o-y)-0.3-0.1-0.40.7-0.9-0.7-0.9-0.5Real effective exchange rate (ULC, y-o-y)2.5-1.70.0-2.3-0.90.41.0-0.9Real effective exchange rate (HICP, y-o-y)1.2-0.50.7-4.20.71.11.5.Savings rate of households (net saving as percentage of net disposable income)2.23.93.72.81.7...Private credit flow, consolidated (% of GDP)26.9-0.7-8.7-1.7-1.1...Private sector debt, consolidated (% of GDP)165.0196.3171.2154.8146.7...of which household debt, consolidated (% of GDP)72.982.374.967.664.1...of which non-financial corporate debt, consolidated (% of GDP)92.1113.996.487.282.6...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).4.47.35.34.8...Corporations, net lending (+) or net borrowing (-) (% of GDP)-5.43.94.64.75.14.64.33.5Corporations, gross operating surplus (% of GDP)20.523.924.023.924.524.624.824.6Households, net lending (+) or net borrowing (-) (% of GDP)-3.31.33.72.31.60.60.30.3Deflated house price index (y-o-y)9.6-8.3-5.13.74.7...Residential investment (% of GDP)11.67.24.34.44.6...Current account balance (% of GDP), balance of payments-7.9-4.21.31.11.91.71.91.9Trade balance (% of GDP), balance of payments-5.2-1.22.92.33.0...Terms of trade of goods and services (y-o-y)0.3-1.10.11.10.5-2.20.7-0.6Capital account balance (% of GDP)0.70.40.60.70.2...Net international investment position (% of GDP)-65.5-88.8-96.5-89.7-83.9...Net marketable external debt (% of GDP) (1).-75.2-71.4-66.2-62.0...Gross marketable external debt (% of GDP) (1)115.8150.6154.6158.6156.9...Export performance vs. advanced countries (% change over 5 years)7.1-3.8-5.2-2.4-0.7...Export market share, goods and services (y-o-y)-2.7-3.92.3-1.35.0...Net FDI flows (% of GDP)3.9-0.3-0.62.61.5...General government balance (% of GDP)1.3-9.0-6.5-5.3-4.5-3.1-2.4-1.7Structural budget balance (% of GDP).-5.5-1.7-2.5-3.3-3.1-3.1-3.0General government gross debt (% of GDP)40.561.597.999.499.098.496.995.5Tax-to-GDP ratio (%)36.232.134.234.533.334.434.434.5Tax rate for a single person earning the average wage (%)20.421.123.021.321.4...Tax rate for a single person earning 50% of the average wage (%)10.69.511.99.910.2...forecast 
 
 
 
2. Progress with country-specific recommendations 

2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

the 

the  Country 

implementation  of 

Progress  with 
the 
recommendations  addressed  to  Spain  in  2017 
has to be seen in a longer term perspective since 
the  introduction  of  the  European  Semester  in 
2011.  Since  then,  Spain  has  overall  advanced 
comparatively  well 
implementing  CSRs. 
in 
Looking  at  the  multi-annual  assessment  of  the 
Specific 
implementation 
Recommendations  (CSRs)  since  these  were  first 
adopted, 42 % of all the CSRs addressed to Spain 
have seen 'some progress' in their implementation. 
On 35 %, Spain made 'substantial progress' or fully 
implemented  them.  23 %  of  the  CSRs  recorded 
'limited'  or  'no  progress'  (see  Graph 2.1).  Reforms 
carried out during economically challenging times 
the  Spanish  economy's  strong 
contributed 
performance  since  its  emergence  from  the  crisis. 
The  decisiveness  and  speed  of  implementation 
have  however  weakened  somewhat  since  2014. 
to 
The  current  minority  government  seems 
concentrate  its  political  capital  on  few  selected 
policy issues, as well as on preventing roll-back of 
earlier  reforms.  In  several  policy  areas  subject  to 
CSRs,  both  the  national  and  regional  levels  of 
government 
reform 
implementation.  In  those  areas,  coordination  and 
accountability 
for  CSR 
implementation. 

challenges 

involved 

remain 

are 

in 

to 

the 

Recommendations  concerning 
financial 
sector, the insolvency framework and the long-
term sustainability of public finances have been 
addressed to a large extent.  The restructuring of 
banks that had received state aid is well advanced, 
and  the  successful resolution  of  Banco  Popular  in 
June  2017  reinforced  confidence  in  the  stability 
and  resilience  of  the  Spanish  banking  sector  as  a 
whole.  The 2011  and  2013  pension  reforms  made 
public finances more sustainable in the long term. 
The 
various 
improvements  since  2012.  The  reform  of  the 
corporate and personal insolvency frameworks has 
facilitated  private  debt 
reduction  and  made 
company defaults less onerous. 

framework 

fiscal 

seen 

has 

In labour market and social policies, significant 
gaps  remain  despite  substantial  progress  in 
earlier  years.  The  labour  market  reforms  carried 
out  since  2012  have  made  employment  creation 
more  responsive  to  economic  growth.  Increased 
flexibility  and  continuing  wage  moderation  has 
been  aiding  this  development.  Still,  policy  efforts 

to  address  the  high  segmentation  in  the  labour 
market  have  remained  limited  and  have  not 
prevented  the  share  of  temporary  contracts  from 
increasing.  Progress  has  also  been  less  prominent 
in  social  policies,  notably  concerning  income 
support  schemes  and  family  policies,  and  in 
education. 

Graph 2.1:  Overall multiannual implementation of 2011-

2017 CSRs by February 2018 

(1) The multiannual assessment looks at the implementation 
progress since a CSR was first adopted until February 2018. 
(2) The assessment of CSRs related to fiscal policy excludes 
compliance with the Stability and Growth Pact. 
(3) Assessment categories in 2011-2012 differed from those in 
the following years. 
Source: European Commission 

and 

research 

strengthen 

innovation, 

reforms  and 

Progress has been more muted in implementing 
product  market 
improving 
research and innovation, also seen from a multi-
annual  perspective.  Over  the  past  few  years, 
Spain  has  received  recommendations  to  address 
regulatory fragmentation in its internal market and 
to 
a 
prerequisite  for  sustainable  productivity  growth. 
Although  the  law  on  market  unity  has  been  in 
force  for  four  years,  the  adaptation  of  sectoral 
legislation  to  its  principles  has  been  slow.  The 
renewed  commitment  of  regions  and  the  central 
to  strengthen 
government 
cooperation  on  market  unity  has  so  far  not 
translated into tangible results. No policy measures 
have  been 
reform  size-contingent 
liberalise  professional  services, 
regulation  or 
which  had  been  the  subject  of  previous  years' 
CSRs.  Both  public  support  and  promotion  of 

in  January  2017 

taken 

to 

12 

No progress1%Limited progress22%Some progress42%Substantial progress21%Full Implementation14% 
 
2. Progress with country-specific recommendations 

Table 2.1: 

Overall assessment of progress with 2017 CSRs 

1 This overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission 

private  funding  for  research  and  innovation  have 
seen only modest increases. There were only a few 
isolated  advances  in  innovation  governance  and 
public-private  cooperation  in  research  and  tertiary 
education,  although  some  measures  taken  may 
need more time to generate measurable impact. 

Spain  has  made 
the 
addressing 

limited 
2017 

(6)  progress 
in 
Country-specific 

(6)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 

(see  Table 2.1).  In 

Recommendations 
fiscal 
policy  and  governance  (CSR 1),  a  new  law  on 
public  procurement  has  been  adopted  which 
improves transparency and control mechanisms. Its 
effectiveness,  in  particular  at  regional  and  local 
level,  will  however  depend  on  proper.  While  no 
legislative initiatives have been taken to strengthen 
the fiscal framework in 2017, the government has 
continued  implementing  the  measures  already  set 

overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

13 

Spain - 2017 CSRs Overall assessment of progress: Limited CSR 1: Ensure compliance with the Council Decision of 8 August 2016, including also measures to strengthen the fiscal and public procurement frameworks. Undertake a comprehensive expenditure review in order to identify possible areas for improving spending efficiency. (MIP-relevant)  Some progress1  Limited progress in strengthening the fiscal framework  Some progress in strengthening the public procurement framework  Some progress in undertaking a comprehensive spending review  CSR 2: Reinforce the coordination between regional employment services, social services and employers, to better respond to jobseekers’ and employers’ needs. Take measures to promote hiring on open-ended contracts. Address regional disparities and fragmentation in income guarantee schemes and improve family support, including access to quality childcare. Increase the labour market relevance of tertiary education. Address regional disparities in educational outcomes, in particular by strengthening teacher training and support for individual students. (MIP-relevant)  Limited progress  Some progress in reinforcing coordination between employment services, social services and employers  Limited progress in promoting hiring on open-ended contracts  Limited progress in addressing fragmentation in income guarantee schemes and improving family support  Limited progress in increasing labour market relevance of tertiary education  Limited progress in addressing regional disparities in educational outcomes CSR 3: Ensure adequate and sustained investment in research and innovation and strengthen its governance across government levels. Ensure a thorough and timely implementation of the law on market unity for existing and forthcoming legislation. (MIP-relevant) Limited progress  Limited progress on investment in research and innovation, with some progress on governance in this area  Limited progress in implementing the law on market unity   
                                                           
                                                                                   
 
 
 
2. Progress with country-specific recommendations 

for  Education"  had  not  resulted  in  decisions  as  of 
February  2018.  Overall,  progress  on  CSR 2  has 
been  limited,  implying  few  achievements  on  the 
Euro  Area  Recommendation  to  promote  social 
fairness and convergence. 

Innovation funding saw modest increases, but this 
has so far not led to increased investment in terms 
of  GDP  share.  However,  Spain  took  a  number  of 
steps  towards  making  the  governance  of  research 
and  innovation  more  inclusive  (CSR 3.1).  There 
were  few  advances  in  the  further  implementation 
of  the  law  on  market  unity.  The  consequences  of 
the  constitutional  court  rulings  declaring  some  of 
its  articles  null  and  void  remain  to  be  seen 
(CSR 3.2).  This  results  in  limited  progress  on 
substantial 
CSR 3,  which  also  means 
the  Euro  Area 
achievements 
Recommendation 
that 
reforms 
increase productivity and improve the business and 
investment environment. 

to  prioritise 

concerning 

few 

for  addressing  key  challenges 

European Structural and Investment Funds are 
pivotal 
to 
inclusive  growth  and  convergence  in  Spain. 
Among others, they support SME competitiveness, 
strengthening  of  digital  skills  and  vocational 
training, and women's labour market participation. 
They are also instrumental for fostering investment 
in  regions'  relative  strengths  in  the  framework  of 
smart  specialisation  and  for  reducing  regional 
disparities in the medium term (see Box 2.2). 

out in the law. An expenditure review, focusing on 
subsidies in several policy areas, was kicked off in 
2017.  Some  progress  has  thus  been  made  in 
implementing  CSR 1,  thereby  also  addressing 
aspects of the 2017 Council Recommendations for 
the  Euro  Area 
to  ensure  sustainable  public 
finances. 

In  labour  market,  social  and  education  policies 
(CSR 2),  some  regions  have  advanced  towards 
better  coordination  between  public  employment 
and  social  services.  Spain  reinforced 
labour 
inspectorates  to  fight  more  effectively  against  the 
abuse  of  temporary  contracts.  Initial  steps  were 
taken to reduce the number of interim contracts in 
the  public  administration.  Measures  to  promote 
the  private  sector, 
in 
open-ended  contracts 
however,  have  shown  limited  effectiveness  so  far 
or have not yet moved to the implementation stage. 
The  roll-out of  the  Universal  Social  Card  in  2018 
will  make  the  receipt  of  social  benefits  more 
transparent,  but  will  not  necessarily  improve  the 
effectiveness  of  income  guarantee  schemes  and 
family support across the country. Some measures 
to  increase  labour  market  relevance  of  tertiary 
education  have  been  initiated  or  pursued  further, 
but  are  still  too  recent  to  have  a  noticeable  effect 
on  outcomes.  Efforts  to  improve  educational 
outcomes have not reduced the persisting regional 
disparities.  Some  measures  to  strengthen  teacher 
training  and  to  support  students,  notably  those  at 
risk  of  leaving  school  early,  were  approved  in 
2017.  Work  in  Parliament  on  the  "National  Pact 

14 

 
2. Progress with country-specific recommendations 

Box 2.2: Tangible results delivered through EU support to structural change in Spain 

Spain is a beneficiary of significant European Structural and Investment Funds (ESI Funds) support 
and can receive up to EUR 39.8 billion until 2020. This represents around 1 % of GDP annually over the 
period  2014-2018  and  17 %  of  public  investment.  By  31  December  2017,  an  estimated  EUR   11.7  billion 
(30 % of the total) had been allocated to projects on the ground. So far, this has paved the way for around 
39 300 enterprises to receive support, of which more than 15 200 are start-ups. By the end of 2016 almost 
1.6 million participations in European Social Fund (ESF)/Youth Employment Initiative (YEI) activities were 
recorded,  from  which  close  to  900  000  (55 %)  involved  unemployed  people  (including  long-term 
unemployed).  Some  44  000  participants  gained  a  qualification  upon  leaving  and  43  800  were  in 
employment,  including  self-employment.  EUR  1.7  billion  from  the  total  amount  is  to  be  delivered  via 
financial instruments, a two-fold increase compared to the 2007-2013 period. 

ESI  Funds  help  address 
implement  country-specific 
structural  policy  challenges  and 
recommendations. Actions financed cover, among others, promoting private R&D and innovation capacity; 
improving the competitiveness of SMEs and their growth and internationalisation potential; the creation of 
new enterprises through financial and non-financial support; strengthening digital skills and improving the 
efficiency of the administration through the development of e-government; improving the effectiveness of 
the  justice  system;  supporting  womens'  participation  in  the  labour  market  particularly  through  developing 
childcare facilities; and strengthening the links between vocational training and the labour market. Funds are 
also contributing to better respond to jobseekers’ needs in activation and support the creation of sustainable 
and quality jobs promoting open-ended contracts. The funds are also used to support the fight against early 
school  leaving  and  the  upskilling  of  the  older  population,  as  well  as  to  strengthen  the  links  between 
vocational training and lifelong learning opportunities, in line with the Skills Agenda priorities. 

Spain  has  already  undertaken  various  reforms  to  fulfil  the  preconditions  for  ESI  Funds  support. 
Smart  Specialisation  Strategies for  research and  innovation  were  developed to  concentrate investments  on 
regions' relative strengths and foster specialisation on products with strong market potential. This has also 
improved  cooperation  between  enterprises  and  public  research  institutions,  and  promoted  the  usage  of 
evaluations of R&D support. The national and regional transport plans have allowed the timely preparation 
of  projects,  implemented  not  only  with  support  from  ESI  Funds,  but  also  from  the  Connecting  Europe 
Facility (CEF), European Investment Bank (EIB) loans and national funding. Reform of public procurement 
will  increase  the  efficiency  of  public  spending.  After  a  slow  start,  the  YEI  implementation  has  made 
significant  progress  in  2017.  Spain  is  the  largest  recipient  of  this  Initiative,  and  will  receive  EUR 418 
million for 2017-2020 in addition to the EUR  943 million allocated for 2014-2015 to continue investing in 
the young people and ensure their sustainable integration in the labour market. 

Spain  is  advancing  the  take  up  of  the  European  Fund  for  Strategic  Investments  (EFSI).  As  of 
December 2017, overall financing volume of operations approved under EFSI amounted to EUR 5 billion, 
which is expected to trigger total private and public investment of EUR 30.8 billion. 54 projects involving 
Spain  have  been  approved  so  far  under  the  Infrastructure  and  Innovation  Window  (including  14  multi-
country projects), amounting to EUR. 4.8 billion in EIB financing under EFSI. This is expected to trigger a 
total  investment  of  about  EUR 22.9  billion.  Under  the  SME  Window,  16  agreements  with  financial 
intermediaries  have  been  approved  so  far.  These  amount  to  EUR 779 million  financed  by  the  European 
Investment  Fund  and  enabled  by  EFSI,  which  is  expected  to  mobilise  around  EUR 8.9  billion  in  total 
investment. Some 96 500 smaller companies or start-ups will benefit from this support. 

Funding under Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is 
additional to the ESI Funds. By the end of 2017, Spain had signed agreements for EUR 976 million for 
projects  under  the  Connecting  Europe  Facility.  From  2014-2016  Spain  has  been  the  4th  beneficiary  of 
Horizon 2020 with a share of 8.8% of the total Horizon 2020 EU contribution. 

https://cohesiondata.ec.europa.eu/countries/ES 

15 

 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE  

MACROECONOMIC IMBALANCE PROCEDURE IN-DEPTH 
REVIEW 

3.1. 

INTRODUCTION 

as 

identified 

The in-depth review for the Spanish economy is 
presented  in  this  report.  In  spring  2017,  Spain 
having  macroeconomic 
was 
imbalances, in particular relating to high levels of 
external and internal debt, both public and private, 
in  a  context  of  high  unemployment.  The  2018 
Alert  Mechanism  Report  (European  Commission, 
2017i)  concluded  that  a  new  in-depth  review 
should  be  undertaken 
to  assess 
developments relating to the identified imbalances. 
Analyses  relevant  for  the  in-depth  review  can  be 
found  in  the  following  sections:  Public  finances 
(Section 4.1.1); Financial sector and private sector 
debt  (Sections  4.2.1  and  4.2.3);  Labour  market 
(Section  4.3.1);  and  Investment  (Section  4.4). 
Potential spillovers to the rest of the euro area are 
discussed in Box 3.4.1. 

for  Spain 

3.2. 

IMBALANCES AND THEIR GRAVITY 

Spain's  net  international  investment  position 
(NIIP) remains very negative. The large stock of 
net  external  liabilities  (-83.2  %  of  GDP  in  Q3-
2017)  leaves  the  country  exposed  to  adverse 
shocks  or  shifts  in  market  confidence.  Favourable 
changes  in  their  composition  somewhat  mitigate 
the associated vulnerabilities.  

to 

interest  rate  shocks,  and 

Despite  a  significant  reduction,  private  sector 
indebtedness  is  still  well  above  prudential  and 
fundamental-based  levels.  Private  sector  debt,  in 
non-consolidated  terms,  amounted  to  159.9 %  of 
GDP  in  Q3-2017  (of  which  61.8 %  of  GDP  was 
household  debt  and  98.1 %  of  GDP  non-financial 
corporate  debt).  A  high  level  of  debt  increases 
its 
vulnerability 
associated  financial  burden  constrains  domestic 
financial  position  of  Spanish 
demand.  The 
households 
to 
improvements  in  the  labour  market  and  lower 
income taxes. Furthermore, the financial burden of 
household debt has been reduced by the prevailing 
low  interest  rates.  With  sustained  GDP  growth, 
household debt reduction is likely to continue, but 
prudential  and  fundamental-based  benchmarks 
show  that  household  debt  remains  high  and 
deleveraging needs persist (see Section 4.2.3). On 

strengthened 

thanks 

has 

the  corporate  side,  the  debt  reduction  process  has 
taken  place  simultaneously  with  new  credit 
flowing  towards  the  less  indebted  and  most 
productive firms, supporting investment (Banco de 
España, 2017d). Despite its significant decline, the 
outstanding  debt  of  non-financial  corporations 
remains  above  what  prudential  and  fundamentals-
based benchmarks warrant (see Section 4.2.3). 

The  general  government  debt  ratio  is  expected 
to have decreased slightly further in 2017, albeit 
remaining at a very high level. The Commission 
2017  autumn  forecast  projects  a  decrease  by  0.6 
percentage points (pps) in 2017, to 98.4 % of GDP. 
Despite  this  downward  trend,  the  high  stock  of 
public  debt  continues  to  be  a  vulnerability  in  the 
face of potential changes in market sentiment and 
the prevailing low interest rate environment. 

Unemployment,  though  still  very  high,  has 
continued  its  rapid  decline.  Unemployment  is 
estimated  at  17.2 %  for  the  whole  of  2017  and  is 
forecast  to  decline  to  15.6 %  in  2018.  This 
constitutes a fall of more than 10 pps since its peak 
in  2013.  Long-term  and,  especially,  youth 
unemployment  saw  a  similarly  steep  fall  during 
this  period,  but  more  than  one  third  of  the  active 
population under 25 years of age did still not have 
a  job  in  Q4-2017.  34%  of  the  increase  in 
employment  between  Q4-2016  and  Q4-2017  has 
taken  the  form  of  temporary  contracts.  This 
increase is however lower than the increase in the 
share of permanent contracts. 

large 

The  relatively 
size  and  economic 
integration  of  the  Spanish  economy  with  the 
rest  of  the  EU  make  it  a  potentially  significant 
source  of  spill-overs  to  other  member  states, 
especially  those  with  which  Spain  has  significant 
trade, financial and/or banking linkages. Box 3.4.1 
illustrates how structural reform measures in Spain 
can carry both a positive domestic and cross border 
effect.  The  simulations  presented  therein  follow 
the  spirit  of  the  2017  Council  Recommendations 
for  the  Euro  Area,  in  particular  as  regards 
increasing  productivity  and  potential  growth,  and 
business 
institutional 
improving 
environment. 

and 

the 

16 

 
 
3. Summary of the main findings from the MIP In-Depth Review 

3.3. 

EVOLUTION, PROSPECTS, AND POLICY 
RESPONSES 

Graph 3.1:  Current account balance and net international 

investment position 

is 
The  persistent  current  account  surplus 
increasingly  driven  by  structural 
factors. 
Despite the key role of domestic demand in driving 
the economic recovery, Spain has been recording a 
current account surplus since 2013. Also, between 
2013  and  2017,  Spain's  net  lending  capacity  has 
remained  relatively  stable  at  almost  2 %  of  GDP, 
despite the shrinking output gap. Initially, cyclical 
and transitory factors (such as low oil prices or low 
interest  rates)  drove  the  improvement  in  the 
current  account  balance,  but,  more  recently, 
structural  factors  are  playing  an  important  role  in 
preserving 
external  position. 
Accordingly,  in  cyclically  adjusted  terms,  the 
current  account  balance  has  continued  to  improve 
(see  Graph 3.1),  exceeding  the  level  suggested  by 
current  account  norms,  that  is,  the  one  explained 
by  fundamentals  (close  to  0.4 %  of  GDP  in 
2017) (7). Export market share increases and signs 
of  import  substitution  (whereby  foreign  imports 
are  replaced  with  domestic  production),  confirm 
the  perception  that  a  structural  change  has  taken 
place in the Spanish economy (see Box 4.4.1). 

improved 

the 

are 

account 

surpluses 

international 

Current 
slowly 
translating  into  a  reduction  of  Spain's  net 
debtor 
investment  position. 
Complemented by high nominal GDP growth, the 
surpluses  are  driving  a  slow  but  steady  reduction 
(see Graph 3.2) (8). 
of  Spain's  negative  NIIP 
Negative  valuation  effects  prevented  a  larger 
improvement in 2013 and 2014, and again in 2017 
with  the  appreciation  of  the  euro.  Continued 
current  account  surpluses  and  high  nominal  GDP 
growth  projected  until  2019  are  expected  to 
facilitate a further improvement of the NIIP. 

(7)  The  current  account  'norm'  benchmark  is  derived  from 
regressions  capturing  the  main  fundamental  determinants 
of  the  saving-investment  balance  (e.g.  demographics, 
resources),  as  well  as  policy  factors  and  global  financial 
conditions.  See  also  European  Commission,  2017, 
'Empirical  current  account  benchmarks:  modelling  the 
impact  of  demographic  variables',  LIME  Working  Group, 
24 April 2017. 

(8)  The recent widening of Target 2 balances is mainly due to 
the  impact  of  quantitative  easing,  rather  than  to  capital 
flight, as was the case in 2012. 

(a) Current account required to stabilise the NIIP at the 
prudential benchmark by 2015 (lhs): 0.2% of GDP 
(b) Fundamentally explained NIIP benchmark: -36% of GDP 
(c) Prudential NIIP benchmark: -61% of GDP 
Source: Eurostat. 

The  change  in  the  composition  of  Spain's 
external liabilities in terms of asset type helps to 
mitigate  the  vulnerability  risks.  Since  2013  the 
proportion  of  equity  instruments  in  total  external 
liabilities  has  been  increasing,  although  from  a 
very  low  level.  Equity  does  not  carry  the  same 
risks  as  debt  for  external  sustainability,  as  its 
remuneration,  i.e.  dividend  payments,  can  be 
adjusted  during  economic  downturns.  The  change 
indebtedness 
in 
towards  public  and  central  bank  liabilities,  with 
generally lower refinancing and liquidity risk, also 
mitigates to some extent the external vulnerability 
of 
(see  Graph 3.3). 
the  external  debt  has 
Additionally,  most  of 
maturities  of  one  year  or  more  (about  74 %  of 
general  government  and  private  sector  external 
debt, excluding intercompany loans). 

the  composition  of  external 

the  Spanish  economy 

its  still 

improve 

Spain  would  need  to  maintain  current  account 
surpluses  over  a  sustained  period  of  time  to 
decisively 
large  external 
liabilities.  While  the  current  account  surpluses 
recorded  since  2013  have  put  the  NIIP  onto  a 
declining  path,  the  amount  of  Spain's  net  external 
liabilities  is  still  far  from  having  achieved  a  level 
that could be considered prudential or in line with 
fundamentals.  This  gap  warrants  further  and 

17 

(a)(b)(c)-100-80-60-40-20020-10-8-6-4-202010305070911131517% of GDP% of GDPCurrent account (lhs)Cyclically adjusted current account(lhs)Net international investment position (rhs) 
                                                           
 
3. Summary of the main findings from the MIP In-Depth Review 

sustained  adjustments (see Graph  3.2) (9).  Even 
under  a 
relatively  benign  growth  scenario, 
maintaining  current  account surpluses  over a  long 
period  of  time  would  be  required  to  decisively 
bring  down  the  large  NIIP  (see  Table  3.1).  It  is 
therefore  crucial  for  Spain 
to  pursue  fiscal 
consolidation  and  preserve  the  competitiveness 
gains made in the past years. While the latter have 
so  far  been  largely  driven  by  wage  restraint, 
advances  based  on  productivity  growth  and  non-
cost  competitiveness  more  generally  continue  to 
pose a challenge.   

Graph 3.2:  Analysis of the rate of change of NIIP — Spain 

nominal  GDP  growth,  the  private  debt-to-GDP 
ratio  is  expected  to  continue  decreasing,  even  as 
bank 
the 
lending  resumes.  Indeed,  although 
outstanding  volume  of  credit  to  the  private  sector 
continues 
to 
to  shrink,  new  bank 
households and to the most productive and/or less 
indebted firms continues to increase, underpinning 
Spain's strong economic growth (Banco de España, 
2017d). 

lending 

Graph 3.3: 

External liabilities by sector-type of financial 
assets: change 2013-2017 

Source: Eurostat 

is 

increasingly 
Private  sector  deleveraging 
driven by GDP growth as new credit continues 
to  grow.  Private  sector  debt  has  been  reduced  by 
about 58 pps of GDP since its peak in 2010. Most 
of  this  reduction  is  due  to  a  decline  in  corporate 
debt  (about  35  pps  of  GDP),  but  progress  in 
household  debt  reduction  (over  23  pps  of  GDP) 
has  also  been  significant.  Even  so,  deleveraging 
needs remain for both households and companies, 
as debt of both institutional sectors remains above 
their estimated prudential and fundamentals-based 
levels  (see  Section  4.2.3).  Thanks  to  the  robust 

(9)  The  country-specific  prudential  threshold  for  the  NIIP  is 
derived  from  a  univariate  signalling  approach 
that 
identifies at which NIIP level an external crisis is likely to 
begin.  The  NIIP 
fundamentals 
represents  the  NIIP  that  would  result  if  a  country  had  run 
its  current  account  in  line  with  fundamentals  since  1995. 
See  European  Commission,  2016, 
the 
methodology  for  NIIP  benchmarks',  LIME  Working 
Group, 21 Nov 2016.  

level  explained  by 

'Refining 

Source: Eurostat, own calculations. 

In  2017,  the  quality  of  bank  assets  improved 
further.  The  stock  of  non-performing  loans  went 
down further to 8.1 % as of November 2017, and is 
now close to the euro area average. On aggregate, 
the  banking  system  comfortably  meets 
the 
regulatory  capital  requirements.  The  resolution  of 
Banco  Popular  on  7  June  2017  has  strengthened 
the Spanish banking sector at large, with no losses 
for taxpayers and depositors.  

the 

that 

the  sharp  adjustment 

financial  sector  crises, 

After 
largely 
the 
prompted 
housing  market  and  construction  sector  have 
consolidated their recovery. Housing prices have 
risen  for  almost  four  years  in  a  row.  However, 
there  remains  a  large  stock  of  unsold  houses, 
notably in some regions, and the recovery does not 
show 
price 
dynamics (Philiponnet  and  Turrini,  2017).  The 
development  of  the  real  estate  market  remains 
crucial for banks’ profitability. 

potentially 

harmful 

18 

-15-10-505101508Q409Q410Q411Q412Q413Q414Q415Q416Q417Q4Change in pp. of GDP (y-o-y)Valuation changesNet transaction effect (rest FA bal.)Investment income effectNominal growth effectChange in NIIP (y-o-y)-30-20-10010203040pps GDPBanco de EspañaDerivativesOther investment, excluding Banco de EspañaPortfolio investment, public debtPortfolio investment, private debtEquity (including intercompany loans) 
 
                                                           
 
3. Summary of the main findings from the MIP In-Depth Review 

Table 3.1: 

Current account balance and net international investment position sensitivity analysis 

(1)  The table above shows the average current account required to reach a certain NIIP by 2025, based on the different 
stated assumptions for nominal GDP growth, assuming no NIIP valuation effects on average, and a stable capital account 
balance at its median level over 2016-18 (0.3 % of GDP). See also European Commission, 2015, 'Refining the methodology for 
NIIP-based current account benchmarks', LIME Working Group 17 June 2015.  
Source: European Commission's calculations 

The insolvency reforms over the past years have 
facilitated  private  debt  reduction.  The  use  of 
pre-insolvency proceedings has increased by about 
50 %  and  out-of-court  agreements  have  become 
common  for  natural  persons.  The  overall  number 
of  insolvency  proceedings  has  started  to  increase 
in  the  first  two  quarters  of  2017,  by  3.9 %  and 
4.3 %  quarter-on-quarter,  respectively.  In 
the 
prevailing  context  of  high  economic  growth  and 
improving access to finance, such figures indicate 
that  insolvency  procedures  have  become  more 
conducive to deleveraging (see Section 4.2.2). 

and 

debt-decreasing 

The reduction of public sector debt is expected 
to  gather  pace.  Despite  strong  nominal  GDP 
growth 
stock-flow 
adjustments  in  2015  and  2016,  the  decline  in  the 
debt ratio has been muted, totalling 1.4% of GDP 
between  2014  and  2016.  This  is  due  to  the  still 
high, though declining, general government deficit. 
Since  2014,  the  reduction  of  the  deficit  has  relied 
to  a  large  extent  on  the  positive  macroeconomic 
outlook  and  the  improving  financing  conditions. 
As the deficit is forecast to continue narrowing in 
2017  and  2018  (to  3.1 %  and  2.4 %  of  GDP, 
respectively)  thanks  to  the  continuation  of  the 
economic  upswing  as  well  as  some  expenditure 
restraint,  the  debt  ratio  is  forecast  to  decrease 
further to just below 97 % of GDP in 2018. While 
there  appears  to  be  no  immediate  risk  of  fiscal 
stress, 
remain 
significant in the medium term (see Section 4.1.1). 

sustainability 

fiscal 

risks 

to 

The  labour  market  has  continued  to  improve, 
but  unemployment  and  segmentation  remain 
high. Strong job creation has continued throughout 
2017,  and  is  expected  to  slow  down  but  remain 
robust  through  2019.  Employment  growth  has 

been  underpinned  by  wage  moderation  and  the 
labour market reforms implemented in 2010-2012. 
However,  it  still  occurs  to  a  large  extent  through 
temporary  contracts,  the  proportion  of  which  in 
total  employment  is  significantly  higher  than  the 
EU  average,  and  has  increased  further  throughout 
2017  (to  26.8%  in  Q4-2017).  This  has  a  potential 
negative impact on productivity growth and social 
cohesion.  Spain  is  taking  measures  to  strengthen 
individual  support  to  the  long-term  unemployed, 
but  their  impact  relies  on  the  capacity  of  the 
regional  public  employment  services.  This  has 
remained limited despite increases in resources and 
improved  coordination  with  social  services  in 
some  regions  (see  Section  4.3.1).  Addressing 
education  and  skills  gaps  is  critical  to  reducing 
structural  unemployment  and  supporting 
the 
reallocation  of  human  resources  towards  more 
productive activities. 

3.4.  OVERALL ASSESSMENT 

The reduction of macroeconomic imbalances in 
Spain has progressed further, but the still high 
stocks of external, public and private debt mean 
that  significant  vulnerabilities  remain.  Private 
sector  debt  reduction  has  continued  to  advance, 
and the slower debt reduction pace in 2017 is due 
to credit flows turning positive. Public sector debt 
has  been  slightly  reduced,  a  process  that  is 
expected  to  accelerate  somewhat  as  government 
deficits 
further. 
are 
narrow 
the  external  balance  are 
Improvements 
increasingly 
factors 
structural 
supporting the growth of exports and limiting that 
of  imports.  Nevertheless,  in  order  to  decisively 
bring  down  its  stock  of  external  liabilities,  Spain 

forecast 
in 

sustained  by 

to 

19 

Low nominal GDP growthBaseline scenario High nominal GDP growth (1.7% avge. 2017-25)(2.7% avge. 2017-25)(3.7% avge. 2017-25)NIIP Stabilisation-1.9-2.7-3.5NIIP at -75% of GDP-0.8-1.6-2.3NIIP at -61% of GDP0.90.2-0.5NIIP at -35% of GDP3.93.32.7 
 
 
 
3. Summary of the main findings from the MIP In-Depth Review 

remains  very  high  with  a  large  proportion  of  it 
being  long-term,  and  the  share  of  temporary 
employment remains high.  

will have to record current account surpluses over 
an 
time.  Although 
unemployment  has  been  declining  rapidly,  it 

extended 

period 

of 

20 

 
 
 
3. Summary of the main findings from the MIP In-Depth Review 

Table 3.2: 

MIP Matrix 

Table (continued) 

(Continued on the next page) 

21 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) External position As a result of the pre-crisis expansion, Spain has a high stock of net external liabilities, amounting to -83.2 % of GDP in 2017Q3, mainly composed of debt instruments. This exposes Spain to adverse shocks or shifts in market sentiment. Vulnerabilities are somewhat mitigated by a bias towards medium-term and long-term maturity assets, and a large share of the external debt issued by the public sector or backed by the Bank of Spain.  The current account has been in surplus since 2013, and is expected to remain close to 2 % of GDP until 2019. Part of this improvement has been due to temporary factors, but export market share increases and initial signs of import substitution, in spite of accelerating domestic demand growth, suggest that a structural change has taken place in the Spanish economy   Current account surpluses are slowly translating into a reduction of Spain's net debtor international investment position (NIIP). Complemented by high nominal growth, they are driving a slow but steady reduction of Spain's negative net international investment position. The appreciation of the Euro caused valuation effects preventing an even greater improvement in 2017.  Continued current account surpluses and high nominal GDP growth projected until 2019 are expected to facilitate a further improvement of the NIIP. Measures have been taken to restore cost competitiveness. Investment in research and innovation, as well as improving labour skills, would be key factor to raise non-cost competitiveness. Measures to address those issues have been modest so far (see Sections 4.3.2, 4.4.3). Public debt Spain has a high level of public debt, which was estimated at 98.4 % of GDP in 2017. A large stock of public debt is a burden on the economy and makes Spain vulnerable to changes in financial or economic conditions and increasing financing costs.  The country faces debt- sustainability risks in the medium term (see Section 4.1.1). Despite strong nominal GDP growth and debt-decreasing stock-flow adjustments in 2015 and 2016, the decline in the debt ratio has been muted, given the still high headline deficit in those years. However, as the deficit is forecast to continue narrowing in 2017 and 2018 (to 3.1% and 2.4% of GDP, respectively) and nominal GDP growth to remain relatively strong, the debt ratio is forecast to decrease further to 96.9% of GDP in 2018. The Commission concluded that the 2018 Draft Budgetary Plan of Spain is broadly compliant with the provisions of the Stability and Growth Pact. The required fiscal effort is projected to be met in both 2017 and in cumulative terms over 2016 and 2017. While the policy fiscal measures taken so far have significantly increased the probability of meeting the 2017 headline deficit target, the 2018 headline deficit target is not projected to be met. The excessive deficit procedure is currently kept in abeyance.   
 
 
 
 
 
3. Summary of the main findings from the MIP In-Depth Review 

Source: European Commission 

22 

Private debt The total stock of private non-financial sector debt stood at 159.9 % of GDP in Q3-2017 terms. Household debt remains high, at 61.8 % of GDP in Q3-2017, while corporate debt now stands at 98.1 % of GDP, after a brisk reduction in recent years. Banks have restructured their activity and cleaned up their balance sheets, and the non-performing loans ratio has continued to decrease. This is now close to the euro area average (8.1 % in November 2017). The debt stock of the private sector has been reduced by about 58 pps of GDP since its peak (about 35 pps for corporate debt and 23 pps for household debt). However, a need for further debt reduction remains. Real GDP growth has become the main driver of private sector debt reduction as new credit has started to flow to, mainly, SMEs and households.   While Spanish households' financial position remains vulnerable, it has been strengthened by the prevailing low interest rates and improved economic conditions. Nevertheless, there are segments more exposed to market changes, such as low income families and those where no member is employed. The reforms of the insolvency regulation framework in 2014/2015 have facilitated debt restructuring and made insolvencies less onerous. The government is planning to do some fine-tuning on those reforms, notably to improve regulation on second chances for entrepreneurs. Adjustment issues Unemployment  The unemployment rate stood at 16.4 % in Q3-2017, of which 43.6 % was long-term unemployment, and youth unemployment was at 36 %. Both rates are among the highest in the EU (see Section 4.3.1). The persistence of high unemployment reflects frictions in the adjustment process to existing macroeconomic imbalances.  Labour market adjustment is key to prevent high unemployment becoming entrenched, ensure a lasting improvement in competitiveness and mitigate social distress. Unemployment has been declining rapidly, but it remains very high, especially for the youth and long-term unemployed. Wage moderation has continued despite the pickup in inflation, whereas productivity growth has remained modest.  High levels of labour market segmentation (permanent vs. temporary employment) continue to affect negatively productivity and working conditions. Coordination between public employment and social services has been somewhat improved by relaunching a network for information exchange, joint training and joint planning, including plans to develop a social card. A new activation strategy focuses on enhancing support measures for unemployed youth, people over 50 years, and the long-term unemployed. Incentives to reduce labour market segmentation have not had a substantial impact so far, but the government has presented proposals for additional measures. Conclusions from IDR analysis  Spain is characterised by a combination of still large stock imbalances in the form of external and internal debt, both public and private. These constitute significant vulnerabilities as they expose Spain to adverse shocks or shifts in market sentiment which would have harmful implications for the real economy, especially given the context of still very high unemployment.  The current account balance and cost competitiveness have continued to improve, but net external liabilities are only decreasing slowly. Progress continues to be made on private sector debt reduction and strong GDP growth provides increasing support for the reduction of debt-to-GDP ratios. Public debt has decreased slightly, with deficits forecast to narrow in future. Unemployment remains very high, despite a substantial, and continued, reduction.  Policy progress has been made especially between 2012 and 2015 regarding the financial sector, the corporate and personal insolvency frameworks, and employment protection legislation. However, challenges remain, in particular concerning improving innovation and skills in order to boost non-cost competitiveness, in increasing the share of open-ended employment contracts, and in ensuring compliance with the fiscal rules. Policy progress to address remaining imbalances has slowed down since 2015.   
 
 
 
3. Summary of the main findings from the MIP In-Depth Review 

Box 3.4.1: Euro area spillovers 

Given its economy's relatively large size, structural reforms in Spain could have spill-over effects on other 
euro  area  countries.  CSRs  to  improve  the  business  environment  by  implementing  product  market  reforms 
have  been  addressed  to  Spain  since  2011. This box  illustrates  the  potential  spill-over effects  from  the  full 
implementation of the Law on Market Unity (LMU), aimed at reducing regulatory disparities across regions 
in Spain, and of a liberalisation of professional services. Both supply-side reforms are expected to lead to a 
more  efficient  reallocation  of  resources  and  to  boost  competitiveness  gains  in  Spain.  Using  the 
Commission's QUEST model (1), the impact of reforms in Spain on real GDP in Spain and other euro area 
countries  is  simulated  (see  Graph  3.4.1).  Monetary  policy  rates  in  the  euro  area  are  assumed  to  remain 
unchanged during the first two years. 

Under  the  scenario  of  full  LMU  implementation (2),  the  administrative  burden  on  Spanish  firms  declines, 
making them more competitive, both in domestic and in foreign markets. As a result, the Spanish real GDP 
after 5 years is about 2 % higher than in the baseline scenario. The impact on real GDP of other euro area 
countries is a fraction of the former, but persists over the simulation period. The effect is larger in countries 
with strong economic ties to Spain, such as France.  

Graph 3.4. 1.1: 

Simulations results: Impact on real GDP 

(PMR) 

Liberalising  professional  services 
also  yields  a  positive,  albeit 
smaller,  impact  on  Spanish  real 
GDP.  This  scenario  assumes  that 
product  market 
the  Spanish 
regulation 
in 
indicator 
professional  services  approaches 
the  values  of  the  best  performers 
in  the  EU  (3).  This  reform,  by 
improving 
in 
product  markets,  leads  to  a  slow 
and  modest  increase  in  Spanish 
real GDP of about 0.24 % after 10 
years. The impact on real GDP of 
other  euro  area  countries 
is 
limited, but positive. 

competitiveness 

(1) EA: Euro area 
Source: European Commission 

In  addition,  the  two  reforms  may 
impact  on 
a  positive 
have 
economic 
confidence, 
agent's 
which  is  captured  by  adding  a 
positive confidence shock to the model. Positive confidence effects that lead to a strengthening of private-
sector  demand  can  amplify  the  positive  spillovers  to  other  euro  area  economies.  The  confidence  shock  is 
simulated as a reduction of the sovereign-debt spread between Spain and Germany (currently at about 100 
basis  points)  to  zero,  of  which  50 %  is  passed  on  to  firm  lending  rates (assumption  based  on  Zoli,  2013). 
This improvement in financial conditions boosts Spanish investment and increases real GDP by about 0.6 % 
after 10 years. The spill-over effect on other euro area countries' real GDP is greater but still limited.  

(1)  Detailed 

the 
http://ec.europa.eu/economy_finance/research/macroeconomic_models_en.htm. 

information 

QUEST 

model 

and 

on 

applications 

is 

available 

at: 

(2)  Total administrative costs (fixed costs) are immediately and permanently reduced by 1.3% of GDP. Calibration based 

on Más Rodríguez and Herrero García (2013).  

(3)  See  Thum-Thysen  and  Canton  (2015),  and  Canton  et  al.  (2015).  The  simulated  size  of  the  reduction  roughly 
corresponds to a reduction of the OECD PMR indicator in professional services from 2.1 to 1.3, which translates into a 
permanent economy-wide reduction of mark-ups by 0.27 pps.  

23 

00.511.522.533.500.020.040.060.080.10.120.1412345678910DEFRNLITEAES (Right)Years afterthe shock %Market Unity Law implementation and professional services liberalization  
 
 
  
  
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  GENERAL GOVERNMENT DEBT * 

Spainʼs general government debt ratio remains 
high.  After  rising  sharply  in  the  years  following 
the  financial  crisis,  the  general  government  debt 
ratio  peaked  at  slightly  over  100 %  of  GDP  in 
2014,  about  65  pps  above  its  low  point  of  2007. 
The  Commission  2017  autumn  forecast  projects 
that  the  debt  ratio  will  decrease  from  98.4 %  of 
GDP  in  2017  to  95.5 %  of  GDP  in  2019,  as 
relatively strong nominal GDP growth increasingly 
offsets  the  narrowing  deficits.  As  the  private  debt 
ratio has declined faster than the government debt 
ratio,  general  government  debt  now  makes  up  a 
much  larger  share of  the  total indebtedness  of  the 
economy  –  at  around  37 %  in  2016  relative  to 
around  20 %  in  2010,  the  year  in  which  private 
debt peaked (See Graph 4.2.3). 

Spain  does  not  appear  to  face  immediate  risks 
of  ʻfiscal  stressʼ.  (10)  This  is  thanks  to  the 
the 
improved  macro-financial  situation,  while 
short-term  challenges  from  the  fiscal  side  are  not 
sufficiently  severe  to  generate  short-term  fiscal 
stress  at  the  aggregate  level.  In  particular,  Spain 
still  has  a  sizeable  negative  net  international 
investment  position  and  low  household  savings 
rate.  However,  risks  are  mitigated  by  the  strong 
real GDP growth, positive current account balance 
and  regained  cost  competitiveness,  as  well  as  the 
low  proportion  of  short-term  debt  among  non-
financial corporations and households and subdued 
private  sector  credit 
risks 
stemming  from  the  fiscal  side  are  larger  and  are 
mainly related to the high general government debt 
ratio  and  relatively  high  gross  financing  needs. 
These  elements  are  mitigated  by  an  improved 
headline  balance,  a  relatively  low  share  of  short-
term  debt  (as  %  of  GDP),  a  low  interest/growth 
rate 
government 
expenditure growth.  

flow.  Short-term 

difference 

subdued 

and 

Spain faces high fiscal sustainability risks in the 
medium term. Debt sustainability analysis  shows 

(10)  For  details  on  the  European  Commission's  assessment  of 
fiscal sustainability risks in the short-,  medium- and long-
‘Debt 
term, 
Sustainability  Monitor  2017’  Directorate-General 
for 
Economic  and  Financial  Affairs,  European  Economy, 
Institutional Paper 071/2018.  

see  European  Commission 

(2018), 

that  under  normal  economic  conditions  and 
assuming  a  constant  structural  primary  balance 
after the last Commission forecast year (2019), the 
Spanish  general  government  debt  is  expected  to 
remain  at  around  95 %  of  GDP  by  2028  (last 
projection  year).  This  projection  is  driven  by  the 
gradual  improvement  in  the  primary  balance  over 
the  projection  period  offsetting  an  increasing 
interest  rate-growth  differential,  especially  in  the 
last part of the period. The analysis also shows that 
the  level  of  the  debt  ratio  is  highly  sensitive  to 
shocks  (see  Box 4.1.1).  Furthermore,  Spainʼs 
structural primary balance would need to improve 
by as much as 5.3 % of GDP in cumulative terms 
over  a  five-year  period  (from  2019  until  2024) 
relative  to  the  baseline  no-fiscal  policy  change 
scenario  to  reach  the  60 %  public  debt-to-GDP 
ratio reference value by 2032. In the Commission's 
assessment  of  debt  sustainability,  this  increase  is 
well above the threshold that qualifies a country as 
facing high risks in the medium term.  

In the longer term, risks to fiscal sustainability 
due  to  the  unfavourable 
initial  budgetary 
position are mitigated by savings in age-related 
expenditure. Savings on non-health ageing related 
spending  (pensions  and  unemployment  benefits) 
amount  to  about  2.4 %  of  GDP,  due  to  the  2011 
and  2013  pension  reforms  and  other  factors.  By 
contrast,  public  expenditure  on  health  care  and 
long-term  care  adds  1.5 %  of  GDP  to  the  fiscal 
sustainability  gap.  This  projection  is  based  on 
current  expenditure 
the  expected 
demographic changes. 

trends  and 

rate 

revaluation 

The  persistent  deficit  of  the  social  security 
system  and  the  continued  application  of  the 
minimum  pension 
are 
receiving  policy  attention.  While  two  successive 
reforms of the pension system,  in 2011 and 2013, 
will  help  contain  pension  expenditure  in  the  long 
term, they are also likely to result in less generous 
pensions.  The  parliamentary  committee  dedicated 
to pension issues held meetings in 2017 to discuss 
possible  further  reforms.  To  date,  these  have  not 
led  to  a  consensus.  For  a  summary  of  the  current 
situation and remaining challenges, see Box 4.1.2. 

24 

 
 
                                                           
4.1. Public finances and taxation 

Box 4.1.1: Medium-term projections of general government debt 

The  public  debt  trajectory  has  been  simulated  under  different  scenarios.  Under  the  baseline  scenario,  the 
general government debt is forecast to decrease slightly during the projection period to reach about 95.1 % 
of GDP in 2028 (the end of the projection horizon). The baseline has been derived from the Commission’s 
2017  autumn  forecast,  consistent  with  the  forecast  implicit  interest  rate  and  the  shares  of  short-term  and 
long-term public debt. It makes a number of technical assumptions. First, over the post-forecast period, the 
structural  primary  balance  is  set  constant  at  the  value  projected  for  2019.  The  cyclical  component  of  the 
primary  balance  is  calculated  using  (country-specific)  budget  balance  sensitivities  over  the  period  until 
output  gap  closure  is  assumed  (2022).  Second,  the  long-term  interest  rate  on  new  and  rolled-over  debt  is 
assumed to be 3 % in real terms by the end of the projection period, while the short-term real interest rate 
reaches an end-of-projection value that is consistent with the 3 % long-term real interest rate and the value 
of the euro area yield curve. Third, the GDP deflator is assumed to change linearly until it reaches 2 % in 
2022  and  remain  constant  thereafter.  Fourth,  the  stock-flow  adjustment  is  set  to  zero  after  2019.  Finally, 
medium-term real GDP growth projections are based on the T+10 methodology agreed with the Economic 
Policy  Committee  and  implies  that  medium-term  real  GDP  growth  is  assumed  to  average  1.5 %  in  2017-
2022 and to slow to 1.2 % on average in 2023-2028. 

Graph 4.1.1.1: 

Gross public debt — Spain 

Source: European Commission. 

More favourable assumptions on real growth would lead the debt ratio to follow a lower path to reach 90. % 
of GDP in 2028. By contrast, under more unfavourable assumptions on real GDP growth or interest rates, 
the debt ratio would increase to 100.5. % of GDP or 101.4. % of GDP by 2028, respectively.  

25 

808590951001051102013201420152016201720182019202020212022202320242025202620272028% of GDPBaseline no-policy change scenarioStandardized (permanent) negative shock (-0.5p.p.) on GDP growthStandardized (permanent) positive shock (+0.5p.p.) on GDP growthStandardized (permanent) positive shock (+1p.p.) to the short- and long-term interest rates on newly issued and rolled over debt 
 
4.1. Public finances and taxation 

Box 4.1.2: The Spanish pension system — reforms and challenges 

The  continuing  large  deficit  in  the  social  security  sector  balance  and  the  gradual  erosion  of  the  Social 
Security  Reserve  Fund  built  up  with  surpluses  of  the  social  security  system  during  the  boom  years  have 
prompted  a  debate  about  the  need  to  further  reform  the  pension  system  in  Spain,  following  the  two 
substantial  reforms  of  2011  and  2013.  Since  October  2016,  the  parliamentary  committee  dealing  with 
pension  reform  has  held  discussions  about  a  new  set  of  recommendations  (the  so  called  "Toledo  Pact" 
process), but the committee has still not reached a conclusion.  

Spain's Social Security System has moved from a position of comfortable surpluses in the years preceding 
the financial crisis to widening deficits, with the latter reaching 1.6  % of GDP in 2016. This is the result of 
nominal  GDP  stagnating  and  contributory  pension  expenditures,  in  particular,  continuing  to  grow  due  to 
demographic  factors  and  a  rising  average  pension.  In  the  face  of  deteriorating  fundamentals,  Spain 
undertook two major reforms (adopted in 2011 and 2013, respectively) to improve the fiscal sustainability of 
the pension system. The 2011 reform aimed to restrict access to pensions by gradually increasing the legal 
pensionable age and reduce the generosity of pensions. The 2013 reform introduced a mechanism adapting 
the level of the initial pension to the evolution of life expectancy at the time of retirement (the ʻsustainability 
factorʼ) and a mechanism called the pension revaluation index (PRI), which aims to adapt the expenditure of 
the  pension  system  so  as  to  ensure  its  long-term  sustainability.  This  is  achieved  by,  within  certain  limits, 
setting the annual revaluation of existing pensions at such a level so as to gradually bring expenditure in line 
with revenue. Hence, if the system is in deficit, the PRI acts by gradually reducing the generosity of existing 
pensions.  As  a  result,  the  sustainability  of  the  pension  system  in  its  current  form  is  virtually  ensured  by 
design as long as its various mechanisms are allowed to work as intended.  

Despite the minimum 0.25% revaluation having been applied for the last four years, the subdued inflation 
has so far implied that the real value of pensions has not been eroded. However, as inflation has picked up in 
2017, this may no longer be the case and continued application of the minimum revaluation may lead to a 
gradual decline in the real value of existing pensions.  

Based on a number of demographic and economic assumptions and including the impact of the two reforms, 
the  European  Commission  2015  Ageing  Report  projects  public  pension  expenditure  to  be  0.8 %  of  GDP 
lower in 2060 compared to its 2013 level. The ratio is first expected to rise from 11.8 % of GDP in 2013 to 
12.5 % of GDP in 2045 as the retiring baby boom generation is driving up the dependency ratio, and then, to 
come  down  to  11 %  of  GDP  by  2060,  as  this  baby  boom  effect  fades  out.  In  this  baseline  scenario,  the 
benefit ratio - i.e. average public pensions in relation to average wages - declines by about 20 pps to around 
40 % by 2060, generating savings amounting to 4.4 % of GDP. A further 0.6 % of GDP is saved by changes 
to the coverage ratio, i.e. who is eligible for a pension. Reflecting the same process, the replacement rate (i.e. 
the average first public pension as a share of the average wage at retirement) is also expected to fall by over 
30  pps  to  slightly  below  50 %.  These  reductions  are  among  the  largest  in  the  EU,  with  a  potential  strong 
negative impact on the living standards of the elderly Spanish population, although Spain would still have 
benefit and replacement ratios around the EU average level in 2060 1. The most recent projections for Spain 
confirm that, due to a large fall in the benefit ratio, pension expenditure will remain contained relative to the 
euro area and the EU (DG Economic and Financial Affairs, 2018). 

The adequacy of future pensions will also crucially depend on the capacity to address current labour market 
challenges, such as the widespread use of temporary contracts (and especially those shorter than 3 months), 
the  incidence  of  part-time  employment  (in  particular  involuntary  part-time  employment),  the  incidence  of 
short  professional  careers,  especially  among  women (2),  and  the  need  to  improve  working  conditions  and 
adapt the work place to allow for longer working life.  

1  Other institutions have reached similar conclusions, e.g. Fedea (Fuente, García Díaz and Sánchez, 2017) and the Bank 

of Spain (Hernández de Cos, Francisco Jimeno and Ramos, 2017). 

2  According to analysis carried out for the 2018 Pension Adequacy Report (forthcoming), average earnings may differ by 

35.3 pp. between a full 40-year career and a shorter 20-year career. 

26 

 
 
 
4.1.2.  TAXATION 

Spain has a relatively low tax-to-GDP ratio and 
relies  less  on  labour  taxes  than  other  EU 
countries.  In  2016,  Spainʼs  tax  burden  accounted 
for 33.3 % of GDP, compared to an EU average of 
about  38.9 %  and  euro  area  average  of  40.1 %. 
Spain raises roughly equal shares of revenues from 
indirect taxes, direct taxes and social contributions. 
Following  a  steep  fall  during  the  crisis  (from 
12.4 %  of  GDP  in  2006  to  8.7 %  in  2009),  the 
share  of  indirect  taxes  has  largely  recovered  (to 
11.8% of GDP in 2016) as a result of higher VAT 
rates, 
the 
improved  VAT  compliance  and 
economic  recovery.  Personal  income  taxes  and 
limited 
social  contributions  have  seen  more 
changes, while corporate income taxes have varied 
significantly  with  the  cycle  and  were  still  much 
below  their  pre-crisis  level  as  a  share  of  GDP.  In 
2015  and  2016,  both  personal  and  corporate 
income  taxes  were  affected by  legislated  tax  cuts. 
Some of the reduction of the corporate income tax 
was  reversed  in  2017,  as  the  corporate  tax  base 
was  broadened  by  reducing  the  deductibility  of 
some items. In 2015, the implicit tax rate on labour 
stood at 31.3 %, below the EU average of 35.9 %, 
and  the  tax  wedge  (11)  in  2016  for  an  average 
single wage earner was 39.5 % compared to an EU 
average of 40.6 %. Employersʼ social contributions 
make  up  a  relatively  large  part  of  the  tax  burden, 
particularly  at  low wage  levels,  resulting in  a  less 
progressive system. 

Despite  a  standard  VAT  rate  in  line  with  the 
EU  average  (21 %  vs  EU  average  of  21.6 %), 
Spain  has  a  relatively  large  VAT  policy  gap. 
The  'actionable  policy  gap'  –  the  policy  gap 
remaining  after  excluding  those  items  where 
charging  VAT  would  be  either  impractical  or  is 
beyond  the  control  of  national  authorities  ‒  stood 
at 27 % in 2015, of which just over half was due to 
the  use  of  reduced  and  super-reduced  rates. 
Simulations 
the  European 
Commission based on the EUROMOD model (See 
Box 4.1.2  in  the  2017  Country  Report)  show  that 
reducing  the  incidence  of  these  reduced  rates 

conducted 

by 

the  scope  and  extent  of 

would  increase  revenues  by  0.2-1.4 %  of  GDP, 
depending  on 
the 
reduction.  Negative  distributional  effects  can  be 
reduced  or  avoided  by  giving  priority  to  items 
where the reduced rate has a regressive effect or be 
compensated  through  other  means,  such  as  social 
transfers.  

In some cases, reduced VAT rates tend to have 
a  regressive  impact.  All  VAT  rate  reductions 
potentially benefit all consumers regardless of their 
income level. As such they are not an effective tool 
for  income  redistribution.  While,  on  average,  the 
reduced  rates  in  Spain  have  some  progressive 
effect,  which  is  almost  entirely  due  to  foodstuff, 
for  many  items  they  have  a  strongly  regressive 
effect. For instance, this is the case of the reduced 
rate for restaurants and hotels.  

The  VAT  compliance  gap  continued 
to 
decrease.  The  gap  –  calculated  as  the  difference 
between  the  theoretical  VAT  liability  and  the 
revenue  actually  received  as  a  percent  of  the 
former – amounted to 3.5 % in 2015 (down from a 
peak  of  13 %  in  2011),  which  is  significantly 
below the EU average of 13 %. In July 2017, Spain 
put  in  place  a  new  information  system  (SII)  that 
requires  medium  and  large  enterprises  to  inform 
the  tax  administration  about  their  commercial 
transactions with a much shorter delay.  

transport  fuel 

taxes)  yielded 

Environmental  taxes  are  still  below  the  EU 
in  recent  years. 
increases 
average,  despite 
Environmental  taxes  in  Spain  amounted  to  about 
1.9 % of GDP in 2016, compared to an EU average 
of about 2.4 % of GDP. In particular, energy taxes 
(including 
little 
revenue,  which  reflects  the  low  level  of  excise 
duties  on  both  unleaded  petrol  and  diesel.  This  is 
particularly  the  case  for  diesel,  on  which  Spain 
applies  the  minimum  excise  duty,  despite  diesel 
having  a  higher  carbon  and  energy  content  than 
unleaded petrol. Finally, taxes on transport, such as 
vehicle  taxes,  only  yield  half  as  much  revenue  in 
Spain  as  the  EU  average  (0.2 %  compared  with 
0.5 % of GDP).  

(11)  The tax wedge on labour represents the difference between 
the  total  labour  cost  of  employing  a  worker  and  the 
worker’s net earnings. It is defined as personal income tax 
and  employer  and  employee  social  contributions  (net  of 
family  benefits)  as  a  percentage  of  total  labour  costs  (the 
wage and employer social contributions). 

Spain  relies  to  a  relatively  low  extent  on 
recurrent taxes in the area of property taxation. 
While  revenues  from  property  taxation  in  Spain 
are  slightly  above 
(2.8 % 
compared  with  2.6 %  of  GDP  in  2015),  the 
recurrent element is below the EU average (1.3 % 

the  EU  average 

27 

 
 
                                                           
4.1. Public finances and taxation 

nine  regions  complied  with  the  deficit  target,  the 
highest number since 2013. Over 2013-2016, fiscal 
rules were in general more frequently observed by 
regions  falling  within  the  medium  GDP  per  head 
groups (Graph 4.1.4).   

Graph 4.1.4:  Share of regions having complied with fiscal 

rules over 2013-2016 by GDP per head and by 
year (100% = 17 regions) 

(1) High GDP per capita regions: MAD, CAT, PV, NAV and 
ARA; Upper medium: RIO, CYL, CANT and BAL; Lower 
medium: AST, GAL, VAL; Low: AND, CAN, CLM, EXTR, MUR.   
Source: Ministry of Finance and European Commission 

on 

governments  have 

Local 
aggregate, 
overachieved  their  budget  balance  targets  over 
2013-2016.  Unlike  regional  governments,  they 
have missed more frequently the public debt target. 
The  improvement  in  the  local  entities’  budget 
balance  has  been  driven  by  reductions  in  the 
interest  and  current  expenditure  to  GDP  ratios 
(Graph 4.1.5 
left-hand  side),  although  current 
expenditure  has  increased  when  measured  in  real 
and per capita terms (Graph 4.1.5 right-hand side).  

The  recovery  in  tax  revenues  and  the  increase 
of revenue transfers facilitates deficit reduction 
by  regions.  In  2016,  the  improvement  in  the 
budget balance was explained by reductions in the 
share  of  capital,  current  and  interest  expense  in 
GDP, but also by the increase in revenue transfers, 
on account of the tax settlement of the 2014 fiscal 
year,  which  yielded  regions  additional  EUR  7.6 
billion  (Graph 4.1.5  left-hand  side).  An  additional 
rise in revenues from the regional financing system 
was  observed  in  the  first  ten  months  of  2017, 
implying  that  the  regional  deficit  target  for  that 

of  GDP  compared  with  1.6 %  in  2015),  while 
transaction  taxes  exceed  the  EU  average  (1.6 % 
compared  with  1 %  of  GDP).  Recurrent  property 
least 
taxes  are  considered  among 
detrimental to growth and preferable to transaction 
taxes,  as  the  former  allow  a  more  efficient 
allocation of assets and higher labour mobility. No 
major policy changes have been introduced in the 
area of property taxation in recent years, except for 
the gradual phasing out of mortgage deductibility. 

taxes 

the 

Graph 4.1.3:  Government revenue by category 

Source: Ameco. 

The  Spanish  tax  system  features  elements 
hindering  investment.  A  high  debt  bias  hampers 
developments  in  equity  markets  (see  Box  4.4.1  in 
the  2017  Country  Report).  The  difference  in  the 
cost  of  capital  for  new  equity-funded  investment, 
on  the  one  hand,  and  debt-funded  investment,  on 
the other, was still one of the largest in the EU in 
2016, despite having improved somewhat.  

4.1.3.  FISCAL FRAMEWORK  

improved 

Spain’s fiscal framework sets out the obligation 
for  subnational  governments  to  comply  every 
year  with  a  deficit,  debt  and  expenditure  rule 
target.  At  regional  level,  compliance  with  fiscal 
targets 
2016 
(Graph 4.1.4). Over 2013-2016, the debt target was 
met  most  frequently,  followed  by  the  expenditure 
rule  target.  However,  deficit  targets  have  had  the 
worst compliance record, even though the regional 
public  deficit  has  gone  down  over  2013-2016 
(Graph 4.1.4 left-hand side). Nevertheless, in 2016 

considerably 

in 

28 

024681012140001020304050607080910111213141516% of GDPIndirect taxesCurrent taxes on income and wealth (households)Current taxes on income and wealth (corporations)Social contributions0%20%40%60%80%100%HIGHUPPERMEDIUMLOWERMEDIUMLOW2013201420152016Compliance by income levelCompliance by yearExpenditure ruleStability targetPublic Debt ruleAverage 
 
 
4.1. Public finances and taxation 

in 

features 

Selected 
the  Stability  Law’s 
expenditure  rule  remain  unregulated.  For 
example,  the  law  does  not  call  on  non-compliant 
governments  to  make  up  for  spending  slippages 
within a pre-defined time frame. Linked to that, the 
law  does  not  clarify  whether  the  reference  rate  of 
eligible  expenditure  should  be  applied  to  the  end-
of-the-year  level  of  eligible  expenditure  or  to  the 
level compliant with the rule. This can reduce the 
impact  of 
fiscal  consolidation 
depending  on  the  interpretation  given  to  the  legal 
provisions.  

rule  on 

the 

The  circumstances  leading  to  the  activation  of 
measures to prevent the risk of non-compliance 
with  the  domestic  fiscal  rules  are  not  defined. 
While this gives the authorities more discretion in 
the activation of those measures, it can reduce the 
automaticity  in  their  implementation.  In  early 
December 2017, shortly after the publication of the 
quarterly  budget  execution  data,  the  Ministry  of 
Finance  sent  letters  to  selected  regions  calling  on 
them  to  address  the  risks  of  non-compliance  with 
the  expenditure  rule.  However,  the  timing  of  the 
letters  reduced  the  chances  for  regions  to  take 
remedial action still in 2017. 

Other  policies  have  been  put  in  place  to  assist 
regional  consolidation  and  enhance  spending 
efficiency.  A  spending  review  was  launched  in 
June 2017 covering public subsidies with a view to 
improving  procedures,  eliminating  duplications 
and  evaluating  impacts.  An  action  plan  was 
adopted by the Spanish government on 26 January 
2018. The first phase of the review is planned to be 
completed by end-2018.    

year is likely to have been complied with (AIReF, 
2017).  

Graph 4.1.5:  Improvement in regional and local 

governments’ budget balance by component 

Source: IGAE (Ministry of Finance) and European 
Commission 

Expenditure  rules  can  be  an  effective  tool  to 
underpin the sustainability of public finances as 
revenue  recovery  sets  in.  By  capping  growth  in 
the  expenditure  falling  under  the  control  of  the 
government  with  reference  to  a  medium-term 
growth  rate  –  as  is  the  case  in  the  Spanish 
legislation - they help fiscal consolidation in good 
economic  times,  while  in  times  of  recession  they 
do  not  hinder  fiscal  policy  playing  a  stabilizing 
role.  Expenditure  rules  therefore  reduce  pro-
cyclicality  in  fiscal  policy.  In  fact,  the  economic 
literature  associates  expenditure 
rules  with 
improved  fiscal  performance  (IMF,  2015).  Over 
2013-2016,  regions  having  complied  with  the 
expenditure rule have, on average, recorded higher 
primary balances. However, regional governments 
reduce  discretionary 
to 
may  have  opted 
expenditure, such as on public investment, to seek 
compliance with the rule rather than pursuing more 
structural 
local 
governments,  which  on  aggregate  are  in  a  better 
budgetary  situation,  special  provisions  apply,  as 
those with sound public finances can, under certain 
conditions,  use  their  budget  surplus  to  fund 
this 
financially-sustainable 
spending  not  qualifying  as  eligible  spending  for 
the purposes of the domestic spending rule.  

forms  of  consolidation.  For 

investment,  with 

29 

-200-1000100200300400-0.6-0.4-0.20.00.20.40.60.81.01.22016/20132016/20152016/20132016/20152016/20132016/20152016/20132016/2015RegionalLocalRegionalLocalConstant EUR per head (2010 prices)pp. of GDPInterest expenditureCapital expenditureCurrent expenditureOther revenuesTaxesNet revenue transfersImprovement in budget balanceRequired improvement 
 
4.2.  FINANCIAL SECTOR AND PRIVATE SECTOR DEBT 

The  Spanish economy  continues  to rely heavily 
on  the  banking  sector.  In  2016,  total  bank  loans 
in  the  economy  represented  about  45 %  of  GDP 
(see  Graph  4.2.1)  vs  an  EU  average  of  around 
36 %, while non-bank financial intermediation via 
equity markets, debt issuance and venture capital is 
below  the  EU  average.    The  outstanding  level  of 
loans to the Spanish private sector has continued to 
decline but at a slower rate than in the past years. 
On aggregate, private sector debt deleveraging has 
progressed,  but  certain  groups  of  households  and 
firms remain vulnerable.  

Graph 4.2.1:  Sources of financing of the Spanish economy 

Source: ECB, Ameco. 

4.2.1.  FINANCIAL SECTOR * 

Banks  have  further  adjusted  their  business 
models  and  cost  structures,  paving  the  way  to 
new  loans  to  the  economy  (12).  On  aggregate, 
banks  comfortably  meet  the  regulatory  capital 
requirements,  and  the  quality  of  their  assets  has 
further  strengthened.  The  successful  resolution  of 
Banco  Popular  in  June  2017  further  strengthened 
the stability of the banking sector and put pressure 
on some small banks to accelerate the clean-up of 
their  balance  sheets.  In  2017,  Spanish  banks  have 
continued 
this 
background,  FROB's  (the  Spanish  Executive 

to  be  profitable.  Against 

(12)  The European Commission conducts the monitoring of the 
Spanish 
Post-Programme 
sector 
Surveillance (PPS), in liaison with the ECB (DG Economic 
and Financial Affairs, 2017). 

financial 

under 

Resolution  Authority)  divestment  from  Bankia  as 
well  as  the  divestment  of  SAREB's  portfolio,  the 
Spanish  asset  management  company,  have  made 
further progress but remain to be completed. 

Table 4.2.1: 

Financial soundness indicators, all banks. 

(1) NPD: Non-performing loans and advances and fixed 
income securities. Consolidated data. (2) NPL: Non-
performing loans and advances. Consolidated data. (3) 
ECB aggregated balance sheet: loans excl to gov and MFI / 
deposits excl from gov and MFI. (4) For comparability only 
annual values are presented. 
Source: ECB CBD. 

lower 

Excluding  losses  due  to  one  resolved  bank, 
banks' profitability improved in the first half of 
2017.  Profits  increased  by  about  4 %  y-o-y  for 
domestic  operations  and  by  about  19 %  y-o-y  if 
operations  abroad  are  included.  The  improvement 
was  mainly  driven  by 
impairment 
provisions.  The  capital  buffers  of  Spanish  banks 
remained  comfortable  in  the  first  half  of  2017, 
although  the  resolution  of  Banco  Popular  in  June 
2017  led  to  the  reduction  of  the  average  common 
equity  tier  1  ratio  from  12.6 %  at  end-2016  to 
11.6 % at end-June 2017, as its equity was written 
off 
(see  Table 4.2.1).  Nonetheless,  Banco 
Popular’s  acquirer,  Banco  Santander,  undertook  a 
EUR 7 billion capital increase in July to restore its 
capital  ratios.  Thus,  at  the  end  of  September  the 
average  common  equity  tier  1  ratio  stood  at 
12.4 %. 

In  2017,  Spanish  banks  continued  to  clean  up 
their  balance  sheets  and  reduce  the  share  of 
crisis  legacy  loans.  The  overall  non-performing 
loan (NPL) share in total loans in Spain went down 
to 8.1 % as of November 2017, from 9.2 % a year 
before.  However,  once  banks'  activity  outside 
Spain  is  taken  into  account,  the  share  of  NPLs  is 
only 5.3 % in second quarter of 2017, close to the 
EU  average  (see  Table 4.2.1).  SAREB  made 
further  progress  in  divesting  the  large  amount  of 
legacy 
crisis. 
Nonetheless, its financial results remained negative 
in both 2016 and the first half of 2017, due to the 
slower than expected recovery of real estate prices, 
in  particular 
is 
overexposed. 

regions  where  SAREB 

stemming 

assets 

from 

the 

in 

30 

0.0000.0050.0100.0150.0200.0250.0300102030405060Listed shares; 2016Debt securities; 2016MFI loans; 2016Gross operating surplus:corporations; 2016Venture capital (rhs); 2015ESEU% of GDP(%)201020112012201320142015201617Q2Non-performing debt (NPD) (1)4.15.26.47.96.75.34.84.5Non-performing loans (NPL) (2)----8.16.35.75.3Coverage ratio65.857.368.146.646.446.845.044.9Loan to deposit ratio (3)108.8108.7108.198.793.391.488.388.6Tier 1 ratio9.610.39.811.811.812.713.012.3Capital adequacy ratio11.912.211.513.313.614.514.714.4Return on equity (4)8.50.2-24.95.86.76.65.0-Return on assets (4)0.50.0-1.40.40.50.50.4- 
 
 
                                                           
 
 
 
4.2. Financial sector and private sector debt 

new  and  growing  firms,  payment  delays,  and 
venture capital (European Commission 2016b).  

Graph 4.2.2:  Loans to the private sector 

Source: Bank of Spain, own calculations 

important 

for  higher 

this  source  of  funding 

Venture  capital  continues  to  grow  but  remains 
underdeveloped 
(see  Graph  4.2.1).  While 
remaining  a  niche  option  compared  to  traditional 
financing  venues, 
is 
particularly 
risk  and 
innovative projects and companies. Investment on 
venture capital continued to grow in 2016 reaching 
a volume of  EUR 385 million in 436 investments, 
with an increasing weight of national investors (42 
% in 2016) (14). However, this represents only 0.5 
%  of  Spanish  SMEs  (vs.  1.3 %  in  the  EU) (ECB 
SAFE  Survey,  2017).  Around  3 %  of  SMEs 
consider  venture  capital  relevant  for  their  funding 
needs  (vs  10 %  in  the  EU),  and  equity  funding  is 
the  preferred  option  for  3.8  %  of  them  (vs.  6.4 % 
in the EU). Meanwhile, bank loans remain by large 
their primary financing source for planned growth 
(71 % vs 63.8 % in the EU). (15) 1 % of innovative 
SMEs  use  venture  capital,  not  significantly  more 
than  the  overall  SME  population.  Beyond  mere 
access  to  finance,  the  underdeveloped  venture 
capital  market  affects  also  the  low  level  of 
innovation in Spain (Section 4.4.3). 

(14)  Source:  Associación  española  de  capital,  crecimiento  e 

inversión (ASCRI) 
(15)  Source: SAFE Survey 

The  housing  market  consolidates  its  recovery, 
easing  progress  in  cleaning  up  banks  legacy 
assets.  After  the  sharp  adjustment  that  followed 
the crisis, the housing market and the construction 
sector are recovering. Housing prices increased by 
6.7 %  year-on-year  in  the  third  quarter  of  2017. 
Prices  of  new  dwellings  went  up  by  6.5 %  and 
those  of  used  dwellings  by  6.7 %.  Moreover, 
during the three-month period ending in November 
2017,  the  number  of  transactions  on  dwellings 
increased  by  17.9 %  year-on-year  (13).  However, 
residential  investment  is  still  much  lower  than 
before  the  crisis,  and  the  stock  of  houses  for  sale 
remains  high  in  some  regions,  which  explains 
cross-regional  differences  in  the  evolution  of 
housing prices. 

in 

the  additional  decline 

The  outstanding  volume  of  credit 
is  still 
decreasing, but new bank lending to SMEs and 
households,  especially  consumer  credit,  has 
In  November,  banks' 
picked  up  strongly. 
domestic  assets  increased  by  about  1 %  year-o-
year,  despite 
the 
outstanding  volume  of  private  credit.  Lending  to 
households  decreased  by  about  3%  y-o-y  in 
November  2017,  while  credit  to  non-financial 
corporations  (NFCs)  declined  by  3.3 %  year-on-
year  (Graph 4.2.2)  (by  2.1%  year-on-year  when 
external  borrowing  and  issuance  of  bonds  are 
included). According to the Bank Lending Survey 
(Banco  de  España,  2018),  credit  conditions  for 
company  loans  remained  stable  while  they  eased 
for household lending in the last quarter of 2017. 

4.2.2.  ACCESS TO FINANCE 

to 

finance 

Access 
is  not  considered  an 
important problem by SMEs in Spain anymore 
(ECB SAFE Survey, 2017). Several measures were 
introduced  in  2014-2015  to  ease  SME  access  to 
finance,  notably  fund-of-funds,  regulation  of 
crowdfunding,  and  a  specific  legal  form  for 
venture  capital  funds  specialised  in  investing  in 
SMEs. More time is needed, however, to measure 
their full impact. The availability of bank loans has 
improved  (Section  4.2.1)  and  business  angel 
funding  for  new  and  fast-growing  firms  has  also 
accelerated. Still, despite significant progress since 
2008,  Spain  continues  to  underperform  in  some 
indicators in this area such as on equity funding for 

(13)  Source: Instituto Nacional de Estadística (INE) 

31 

-30-20-100102030400708091011121314151617% y-o-yTotal non-MFI private sectorNon-financial corporatesHouseholds & NPISH 
                                                           
 
                                                           
4.2. Financial sector and private sector debt 

(Graph 4.2.4).  New  credit 

mortgage  loans,  which  banks  write  off  less  often 
than  corporate  loans.  The  debt  reduction  process 
was initially driven by negative credit flows, but is 
increasingly  being  supported  by  the  recovering 
GDP  growth 
to 
households is growing, in both segments, to house 
purchases  and  consumption.  With  sustained  GDP 
growth,  debt  reduction  is  likely  to  continue  while 
prudential  and  fundamentals-based  benchmarks 
reveal  that  household  deleveraging  needs  still 
persist (Graph 4.2.5).  Nevertheless the adjustment 
is  taking  faster  than  suggested  by  fundamentals, 
indicating  a  sufficient  deleveraging  speed.  Even 
so, in the long term,  household saving rate levels 
should  adjust  slightly  upward 
to  guarantee 
household  debt's 
sustainability  at  aggregate 
level (17).  What 
is  unevenly 
distributed  across  households,  and  some  over-
indebted households – often low income or jobless 
households - are particularly vulnerable to changes 
in the economic and financial outlook. 

is  more,  debt 

Graph 4.2.4:  Decomposition of y-o-y changes in debt-to-

GDP ratios, households (ESA 2010) — Spain 

Source: Eurostat 

The  financial  burden  of  Spanish  households 
continued  to  decline  in  2017.  With  low  interest 
rates  and  variable  rate  loans,  although  declining, 
prevailing  in  the  Spanish  mortgage  market,  the 

(17)  Debt sustainability indicators correspond to the  permanent 
adjustment in the savings rate to (i) reach the fundamental 
benchmark  for  debt  within  15  years  (S1)  and  (ii)  ensure 
that net financial liabilities are eventually reimbursed (S2). 
See  European  Commission,  2017,  'Benchmarks  for  the 
assessment of private debt', Note for the Economic Policy 
Committee (not publicly available). 

Graph 4.2.3:  Composition of debt — ES 

Source: Eurostat 

4.2.3.  PRIVATE SECTOR DEBT * 

Private sector indebtedness continues declining, 
but  remains  high,  especially  for  certain  groups 
of  corporations  and  households.  The  stock  of 
private  non-financial  sector  debt  amounted  to 
159.9 % of GDP, in non-consolidated terms, in the 
Q3-2017  (61.8%  of  GDP  by  households  and 
98.1%  of  GDP  by  NFCs),  about  58  pps  of  GDP 
lower  than  at  its  peak  in  Q2-2010  (Graph 4.2.3). 
Despite  this  significant  reduction,  prudential  and 
fundamentals-based  benchmarks  for  private  debt 
indicate  that  Spain  still  faces  deleveraging  needs 
(16). This is the case in particular for companies in 
the  construction  and  real  estate  services  sectors, 
and  for  low-income  and  jobless  households  (IMF 
Chapter  IV  Report,  October  2017).  Nonetheless, 
debt 
the 
reduction  has  been 
fundamentals would suggest. 

faster 

than 

Real  GDP  growth  has  become  the  main  driver 
of  households’  debt  reduction.  Households  have 
reduced  debt  more  gradually  than  the  corporate 
sector,  as  most  household  loans  are  long-term 

(16)  Fundamental-based 

are 

derived 

from 
benchmarks 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which 
is  high, 
minimising the probability of missed crisis and that of false 
alerts.  See  European  Commission,  2017,  'Benchmarks  for 
the  assessment  of  private  debt',  Note  for  the  Economic 
Policy Committee (not publicly available). 

the  probability  of  a  banking  crisis 

32 

0501001502002503003500102030405060708091011121314151617% of GDPGGHHs and NPISHsNFCsTotal private non financial sector-8-6-4-20246810121407Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q1y-o-y changeCredit flowReal growthInflationOther changesD/GDP, change 
 
                                                           
 
                                                           
4.2. Financial sector and private sector debt 

financial  burden  borne  by  households  to  service 
their  debt  has  been  falling  rapidly.  Nevertheless, 
and  despite  labour  market  improvements  and 
growing  gross  disposable  income,  the  ratio  of 
NPLs  from  household  debt  has  remained  broadly 
stable at 5.5 % in the first three quarters of 2017. 

Graph 4.2.5:  Gap to the fundamental-based and prudential 

benchmarks, HH and NFC 

benchmark  (Graph 4.2.5),  but  deleveraging 
progressing at a sufficient pace. 

is 

The  financial  position  of  the  corporate  sector 
has  continued  to  improve  in  2017.  The  net 
financial  wealth  of  firms,  although  remaining 
negative,  increased  for  a  fourth  consecutive  year, 
from  −134.6 %  of  GDP  in  2013  to  a  forecasted 
−113.8 %  in  2017.  This  improvement  was  driven 
by reductions on the liabilities side that more than 
offset  those  on  the  assets  side.  While  assets 
decreased across almost all asset classes, the drop 
in  liabilities  was  mostly  driven  by  reductions  in 
corporate loans. 

Graph 4.2.6:  Decomposition of y-o-y changes in debt-to-
GDP ratios, quarterly non-consolidate data, 
non-financial corporations (ESA 2010) — ES 

(1) Gap based on the consolidated debt ratio by sector. A 
positive value means that deleveraging needs persist 
Source: European Commission  

ratio. 

lending 

debt-to-GDP 

credit.  New 

Debt  reduction  in  the  corporate  sector  as  a 
whole  is  taking  place  simultaneously  with  new 
borrowing  by  the  most  solvent  and  productive 
firms. Between 2012 and 2016 negative net credit 
flows  were  the  main  driver  of  the  fall  in  the 
corporate 
However, 
deleveraging  is  now  mainly  driven  by  real  GDP 
growth,  while  the  improvement  in  economic 
conditions has gone hand-in-hand with an increase 
in  new 
to  SMEs 
(approximated  by  loans  under  EUR 1 million) 
continued  to  rise  in  2017  (a  8.3 %  year-on-year 
growth  the  three  months  moving  average  until 
November),  as  well  as  the  volume  of  new  loans 
above  EUR 1 million 
(a  2.5 %  year-on-year 
increase).  As  a  result,  the  deleveraging  process 
slowed down during 2017. According to the Bank 
of  Spain's  Central  Credit  Register,  while  the  total 
stock  of  outstanding  credit 
to  non-financial 
corporations has decreased, the proportion of firms 
that increased or maintained their borrowing levels 
has risen (Banco de España, 2017d). As is the case 
for  households,  corporate  indebtedness  remains 
the  prudential  and  fundamentals-based 
above 

Source: Eurostat 

to 

the 

insolvency 

Reforms 
regulation 
framework  in  2014  and  2015  have  facilitated 
debt  restructuring  and  made  insolvencies  less 
onerous.  The  use  of  pre-insolvency  proceedings 
has  increased  strongly,  from  55 %  of  insolvency 
proceedings in 2013 to 81 % in 2016. Out-of-court 
agreements  for  natural  persons  have  increased 
from 32 % of total proceedings in 2015 to 84 % in 
2016,  partly  because  the  applicability  of  such 
agreements  was  extended  to  debt  not  related  to 
economic  activity.  The  number  of  corporate 
insolvency  proceedings  decreased  by  3.6 %  in 
annualised terms in the first three quarters of 2017. 
However, given that in 2017 economic growth was 
strong and access to finance improving, this slight 
decline  can  still  be  seen  as  a  sign  that  insolvency 
procedures  have  become  more  conducive  to  debt 

33 

-20-10010203040506070969798990001020304050607080910111213141516% of GDPPrudential threshold - HHFundamental benchmark - HHPrudential threshold - NFCFundamental benchmark - NFC-20-15-10-5051015202507Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q1y-o-y changeCredit flowReal growthInflationOther changesD/GDP, change 
 
 
4.2. Financial sector and private sector debt 

insolvency  plan  still 

reduction  and  preventing  capital  from  being  tied-
up  in  unproductive  companies.  Proceedings  with 
an  anticipated 
took  a 
relatively long time in 2015 (most recent available 
data),  but 
(408  days) 
represents  a  significant  improvement  compared  to 
ordinary insolvency procedures (544 days) (18). 

their  average 

length 

(18)  Source: Spanish Official Body of Registrars. 

34 

 
                                                           
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET * 

levels 

Efforts  undertaken  to  promote  employment 
creation  are  bearing  fruit,  but  unemployment 
and  segmentation  still  remain  high.  Robust 
economic growth supported strong net job creation 
in 2017, which in turn supported domestic demand 
and  growth.  In  Q4-2017  the  employment  rate 
reached  66.1 %,  and 
the  unemployment  rate 
continued  to  decline  steadily  to  16.6 %.  Both 
indicators  remain  nevertheless  far  from  their  pre-
crisis 
in  Q3-2007, 
(70%  and  8% 
respectively).  Unemployment  affects  in  particular 
the  young  (37.5 %  for  15-24  years  old),  low-
skilled (19)  workers  (23.8 %)  and  third-country 
nationals (25.9 %; all figures for Q4-2017). Long-
term  unemployment  is  decreasing  (1.6 million 
people,  compared  to  2.1 million  one  year  before), 
but  still  accounts  for  43.6 %  of  all  unemployed. 
The  temporary  employment  rate  is  very  high 
(26.8 % in Q4-2017). However, the share of open-
ended  contracts  in  net  employment  growth  has 
increased to 54% on average in 2017. 

The  four-year  recovery  continues  to  benefit 
from  past  reforms  and  wage  moderation.  The 
labour  market  reforms  carried  out  between  2010 
and 2012 helped increase employment elasticity to 
real  GDP,  bringing  it  closer  to  pre-crisis  levels 
(from  0.8  in  2015  to  0.86  in  2017,  compared  to 
0.98 in 2000-2007). Whereas real wages increased 
in  2015  and  2016  due  to  negative  inflation, 
to  have 
nominal  wage  growth 
remained  contained  in  2017  (0.5%),  below  HICP 
inflation 
line  with 
productivity (0.3%). 

(2%),  but  broadly 

is  projected 

in 

the  2012 

2009.  Wage  growth  started  to  adjust  to  overall 
in  2010,  when 
conditions 
labour  market 
20 %.  Wage 
unemployment 
approached 
labour 
adjustment  accelerated  after 
market  reforms,  which,  among  others,  increased 
firms’  internal  flexibility  and  raised  the  wage 
bargaining  system's  responsiveness  to  business 
(European  Commission, 
cycle  developments 
2017a).  During  the  economic  recovery,  wage 
moderation  has 
rapid 
contributed 
unemployment  decline.   This  wage  moderation  is 
consistent  with  the  still  high  unemployment  rate 
and,  also,  with  the  labour  market  slack  in  the 
economy, including a high share of people who are 
marginally  attached  to  the  labour  market  or 
underemployed (20).  In  Q3-2017,  labour  market 
slack  in  Spain  was  estimated  at  a  sizeable  27.1 % 
of  the  labour  force  (15-74  years).  In  addition,  the 
collective  agreements  with  recorded  economic 
effects  in  2017  have  shown  signs  of  moderate 
wage increases (1.45 % on average). 

the 

to 

The  2017  rise  in  the  minimum  wage  did  not 
affect  employment  significantly.  Its  increase  by 
8 %  has  had  a  limited  impact  on  aggregate 
employment  and  the  wage  distribution  (Bank  of 
Spain,  2017).  For  2018,  a  further  increase  of  4 % 
has  been  approved  and  the  government  has 
announced  plans  to  define  a  growth  path  for 
increasing  the  minimum  wage  up  to  a  monthly 
EUR 850  in  2020  (up  from  EUR 736  today), 
conditional  upon  a  certain  minimum  GDP  and 
employment growth. This may put pressure on the 
lower  part  of  the  wage  structure  and  thus  have  a 
more  noticeable  negative  effect  on  employment, 
notably for young and low-skilled workers. 

Wages  have  become  gradually  more  aligned 
with labour market conditions. Before the crisis, 
wages were relatively insensitive to unemployment 
changes, and were still rising at a rate above 4 % in 

(19)  Level of qualification ranging from (pre-) primary to lower 

secondary education (ISCED 0-2). 

(20)  Workers  marginally  attached  to  the  labour  market  include 
persons  available  to  work  but  not  seeking  work  and  those 
immediately  available;  while 
seeking  work  but  not 
underemployed  workers  are  those  working  part-time  but 
wishing to work longer hours.   

35 

 
 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by the European  Parliament,  the 
Council  and  the  European  Commission,  sets  out  20  principles  and  rights  to  benefit  citizens  in  the  EU.  In 
light of the legacy of the crisis and changes in our societies driven by population ageing, digitalisation and 
new ways of working, the Pillar serves as a compass for a renewed process of convergence towards better 
working and living conditions. 

Spain faces challenges with regard to a number of indicators of the Social Scoreboard (1) supporting 
the European Pillar of Social Rights, especially in the area of "equal opportunities and access to the labour 
market".  The  labour  market  situation  remains  difficult,  although  quickly  improving.  Still,  a  large  share  of 
young people (14.6% in 2016) is neither in employment nor in education or training. 

Early school leaving rates are relatively high. In spite 
of  recent  improvements,  the  share  of  early  school 
leavers was 19 % of the population aged 18-24 in 2016. 
Low education levels greatly increase the risk of future 
poverty and social exclusion. Spain also has large levels 
of income inequality. The income quintile ratio S80/S20 
increased  0.1  pps 
labour  market 
segmentation,  stagnating  incomes  in  the  lower  part  of 
the distribution and a low redistributive effect of the tax 
and  benefits  system  are  among  the  reasons  for  this 
outcome.  

in  2016.  High 

Spain  took  steps  to  fight  the  abuse  of  temporary 
contracts  on  "secure  and  adaptable  employment". 
The  government  increased  the  labour  inspectorate's 
resources and the integration of administrative databases 
boosted  their  efficiency,  notably  through  a  better 
targeting of controls. 

Some  Spanish  regions  are  developing  innovative 
approaches  to  better  support  the  most  vulnerable 
jobseekers. For instance, the region of Murcia recently 
implemented  an  EU  co-funded  project,  from  which 
more  than  3,500  women  benefitted,  and  over  50 %  of 
participants  already  found  jobs.  The  project  combines 
employment and social services as well as incentives for 
employers.  It  aims  to  empower  victims  of  gender-based  violence,  mostly  women,  by  giving  them  the 
required support and skills to obtain economic independence by getting a job. 

(1)   The  Social  Scoreboard  includes  14  headline  indicators,  of  which  12  are  currently  used  to  compare  Member  States 
performance.  The  indicators  "participants  in  active  labour  market  policies  per  100  persons  wanting  to  work"  and 
"compensation  of  employees  per  hour  worked  (in  EUR)"  are  not  used  due  to  technical  concerns  by  Member  States. 
Possible alternatives will be discussed in the relevant Committees. GDHI: gross disposable household income. 

Wage  developments  have  become  more 
conducive  to  labour  market  adjustment  across 
regions.  All  regions  have  benefited  from  the 
recovery,  but  the  decline  in  unemployment  has 
been  larger  in  regions  where  it  increased  most 
during  the  crisis.  For  example,  between  Q2-2013 
and  Q2-2017,  the  unemployment  rate  dropped  by 
more  than  11 pps  in  Andalucía,  Canarias,  Castilla 
y  León,  Extremadura  and  Murcia,  where  it  had 

increased  more 

increased  by  more  than  20 pps  between  2007  and 
2013.  Before  and  during  the  first  years  of  the 
crisis,  wages 
high 
unemployment  regions.  After  the  2012  labour 
market 
inter-professional 
agreements  between  the  social  partners  for  2012-
14 and 2015-17, wage developments have aligned 
to  some  extent  with  regional  differences 
in 
unemployment (Graph 4.3.2).  

reforms 

and 

the 

in 

36 

Early leavers from education and training (% of population aged 18-24)Critical SituationGender employment gapOn averageIncome quintile ratio (S80/S20)Critical SituationAt risk of poverty or social exclusion (in %)To watchYouth NEET (% of total population aged 15-24)To watchEmployment rate (% population aged 20-64)Weak but improvingUnemployment rate (% population aged 15-74)Weak but improvingGDHI per capita growth To watchImpact of social transfers (other than pensions) on poverty reductionTo watchChildren aged less than 3 years in formal childcareBetter than averageSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsOn averageSocial protection and inclusionEqual opportunities and access to the labour marketSPAINMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,please consult the draft Joint Employment Report 2018, COM (2017) 674 final.NEET:neitherinemploymentnorineducationortraining;GDHI:grossdisposablehousehold income.Dynamic labour markets and fair working conditions 
 
to 

with 

sectoral 

Wage  developments  have  been  only  weakly 
productivity 
aligned 
developments. 
European 
According 
Commission  analysis,  between  2012  and  2016,  a 
1% increase in real productivity in a given region 
and sector results on average in a 0.06 % increase 
in real wages in that region and sector, whereas a 1 
pp  increase  in  the  unemployment  in  that  region 
results in a 0.2 % decrease in real wages. However, 
these  estimates  differ  substantially  from  sector  to 
sector (Graph 4.3.3). 

Graph 4.3.2:  Responsiveness of wages to unemployment by 

region 

The solid line depicts the regression coefficient of labour cost 
growth on the unemployment rate by region (controlling for 
the consumer price index and a common time dummy). 
Regressions are estimated on rolling windows of 18 quarters. 
Positive values indicate higher wage growth in regions 
where unemployment is higher. Negative values indicate 
lower wage growth in regions where unemployment is 
higher. Dotted lines represent the 95 % confidence interval. 
Source: Own computation on data by Instituto Nacional de 
Estadistica 2017. 

4.3. Labour market, education and social policies 

Graph 4.3.3:  Responsiveness of wages to productivity 
developments and regional changes in 
unemployment by sector (2012-2016) 

% increase in real wage for a 1% real productivity increase in 
a given sector and region (controlling for regional changes in 
the unemployment rate), based on a panel regression with 
sectoral effects using regional accounts by sector.  
(*) Values for "All sectors" are calculated using a panel 
regression with no sector dimension and fixed effects by 
region only. 
Source: INE, European Commission 

A number of policy initiatives aim at enhancing 
labour activation and insertion of young people. 
The share of young people neither in employment, 
nor  in  education  or  training  is  decreasing  (from 
18.6 %  in  2013  to  14.6 %  in  2016)  but  remains 
high.  Following  the  reform  adopted  in  December 
2016 and increased outreach efforts, the number of 
newly  registered  young  people  in  the  Youth 
Guarantee  continues  to  increase,  particularly  for 
those  25-30  years  old  (around  1  million  in 
December  2017).  Moreover,  the  share  of  young 
beneficiaries  still  in  employment  six  months  after 
increased 
the  Youth  Guarantee  has 
leaving 
significantly  from  38 %  in  2015  to  51 %  in  2016. 
The  increase  is  partly  explained  by  an  improved 
statistical  tracking  of  former  beneficiaries.  (21) 
remain, 
implementation  challenges 
However, 
including  reaching  the  most  vulnerable  young 
NEETs, 
the  Public 
capacity 
Employment  Services (PES) to  ensure delivery  of 

limited 

of 

(21)  A  key  change  in  the  Youth  Guarantee  (YG)  is  the 
simplification of the registration process that allowed more 
jobseekers to participate, including those who were already 
enrolled in activities compatible with the YG scheme. 

37 

-0.15-0.1-0.0500.050.10.150.20.25After the vertical line: sample periods that follow the 2012 labour market reform-1.5-1-0.500.51AgricultureManufacturingConstructionTrade, trans., hosp.ICTFinanceReal estateProfesionnal servicesHH support servicesAll sectors (*)Productivity (1% change)Unemployment (1pp. change unemployment rate) 
 
 
 
                                                           
4.3. Labour market, education and social policies 

New measures have been adopted to encourage 
self-employment  in  a  context  of  a  limited 
number  of  newly  registered  self-employed.  The 
approval  of  a  new  Self-employed  Law in  October 
2017  seeks  to  encourage  job  creation  through 
entrepreneurship  (22).  It 
includes  a  one-year 
extension  of  the  monthly  flat  rate  EUR 50  social 
security  contributions  for  new  self-employed 
workers, a 100 % bonus on social security fees for 
maternity leave, the deduction of current expenses 
if working from home, and flexible administrative 
procedures  (such  as  the  registration  in  the  self-
employed register and changes in the contribution 
base).  So  far  these  measures  have  had  a  limited 
impact on the number of registered self-employed 
workers  and  on  the  creation  of  additional  jobs 
through self-employment. (23)  

improve 

Lack  of  resources  and  weak  coordination 
continue  to  weigh  on  Public  Employment 
Services'  (PES)  effectiveness.  In  Spain,  active 
labour  market  policies  are  managed  at  regional 
level  and  passive  measures  at  national  level.  In 
2017,  Spain  increased  the  economic  and  human 
resources of regional PES and set up new measures 
to 
including  an 
their  effectiveness, 
intermediation  model  based  on  competency 
management,  a  common  system  of  statistical 
profiling for jobseekers, better functionality of the 
Single  Job  Portal,  and  a  legal  framework  for 
public-private  collaboration. However,  total  PES 
staff  is  still  3 %  lower  than  in  2015,  and  PES 
expenditure  is  33 %  (EUR 12 000 million)  lower 
than  in  2012.  The  number  of  vacancies  managed 
remains  small  (2.8 %  of  total  vacancies  against 
10 % on average in the EU). Besides, the Spanish 
unemployed  are  less  inclined  than  their  European 
peers  to  use  the  PES  (24.6 %  in  2017  against 
46.2 %  in  the  EU-28,  lowest  share  in  the  EU; 
based  on  Labour  Force  Survey  data).  This  figure 
has  steadily  decreased  from  a  peak  of  41.4 %  in 
2009. 

After  a  long  negotiation,  Spain  approved  new 
vocational 
the 
training  measures 
unemployed  in  July  2017.  The  initiative,  known 
as  "Cheque  formación",  will  be  implemented  at 
regional  level  and  is  expected  to  enhance  training 

for 

(22)  In  2017,  a  total  of  10  500  new  self-employed  were 
registered,  which  represents  a  net  increase  of  0.33 %  (the 
lowest figure since 2014). 

(23)  Source:  Ministry  of  Employment  and  Social  Security 

(Register of Self-employed) 

personalised  action  plans  and  quality  offers 
matching the beneficiaries’ profiles. Moreover, the 
existing  partnerships  with  education  and  training 
providers  have  not  yet  allowed  an  effective  up-
skilling  of  part  of  the  young  people  registered  in 
the Youth Guarantee.  

the 

Spain  extended  the  existing  support  measures 
for  the  long-term  unemployed.  The  PREPARA 
(Professional  Retraining  Programme)  Plan  has 
been  extended  until  April  2018.  Following  a 
Constitutional  Court  ruling,  there  are  plans  to 
three  national  non-contributory 
integrate 
unemployment  assistance  schemes  (PREPARA, 
RAI,  i.e.  Active  Insertion  Income,  and  PAE,  i.e. 
Activation  Programme  for  Employment)  into  one 
single scheme that would be financed through the 
national  social  security  system,  but  administered 
by the regions. If approved and implemented, this 
plan would partly address the fragmentation of the 
national  income  guarantee  schemes  and  reinforce 
their  activation  component.  The  joint  action  plan 
signed  in  December  2016  to  support  regional 
Public  Employment  Services  (PES)  in  financing 
activation  of  the  long-term  unemployed  (LTU)  is 
(budget: 
being 
EUR 515 million). LTU's 
from 
unemployment  increased from  8.6 %  to  10.7 %  in 
2013-2015  (Fedea,  2017/07). Still,  only  8.7 %  of 
all registered LTU had a job integration agreement 
in  2016  (against  an  EU  average  of  56.2 %). 
Among  them,  the  share  of  those  who  regained 
employment is close to the EU average (15.6 % vs. 
14.2 %; European Commission, 2017c). 

implemented 

exit 

rate 

The Employment Activation Strategy 2017-2020 
aims to improve the impact of measures already 
in  place,  with  a  stronger  focus  on  results.  The 
Strategy  includes  guidance,  training  and  support 
for  LTU,  people  over  50  years  of  age  and  low-
skilled  young  people.  In  addition,  it  will  promote 
the  modernisation  and  coordination  of  the  PES, 
including  a  results-based  evaluation,  and  an 
improvement  of  the  Vocational  Education  and 
Training  System  (VET),  especially 
the  Dual 
Training.  This  strategy  has  a  budget  of  EUR  5.6 
billion for 2017 (6 % more than in 2016). Around 
37 %  of  this  amount  will  be  transferred  to  the 
Spanish 
resources  will  be 
results  and  performance 
conditional  on 
achieved  by  the  regions,  especially  for  LTU. 
However,  the amount of funds per unemployed  is 
still below the levels of 2011. 

regions.  These 
the 

38 

 
                                                           
4.3. Labour market, education and social policies 

of  unemployed  people  in  order  to  improve  their 
employability. 

Graph 4.3.4:  Employment by type 

labour  market 

segmentation  and 
Strong 
widespread  involuntary  part-time  employment 
persist  in  Spain.  Spain  continues  to  rank  among 
the countries in the EU with the highest shares of 
employees  in  temporary  contracts  (26.8 %  in  the 
Q4-2017, Graph 4.3.4).  Nevertheless, the share of 
open-ended  contracts  in  net  employment  growth 
increased to 54 % on average in 2017 (from 39 % 
on  average  in 2015).  While  the  share of part-time 
employment started to decline (to 14.9 % in 2016, 
4 pps  below  the  EU  average),  61.9 %  of  it  is 
involuntary (compared to an average of 27.7 % in 
the EU-28). 

The  above  EU-average  share  of  temporary 
contracts  in  Spain  cannot  be  explained  by  a 
different  sectoral  structure  of  the  economy. 
Segmentation remains a key feature of the Spanish 
labour market (see the 2017 Country Report for a 
detailed  analysis).  The  share  of 
temporary 
employees in total employment is almost 10.7 pps 
higher than the EU average, and only a very small 
fraction  of  this  difference  (about  1.5  pps)  is 
explained by a higher weight of sectors where the 
use  of  temporary  contracts  is  more  widespread. 
The share of employees with a temporary contract 
in Spain is higher than in the EU in all sectors, not 
only  those  with  strong  seasonal  or  cyclical  nature 
such  as  agriculture,  tourism  and  construction 
(Bank of Spain, 2017) (Graph 4.3.6).  

(1) Ages 20-64, based on non-seasonally adjusted data. 
Source: Eurostat. 

few 

than 

incentives 

Temporary  employment  affects  mostly  young, 
low-skilled workers and third-country nationals 
(74.5 %,  39 %,  and  39.6 %,  respectively (24)). 
Contracts  shorter 
three  months  remain 
widespread.  Evidence  for  Spain  shows  that  the 
shorter the duration of the contract, the less likely 
workers  are  to  move  to  a  permanent  contract 
(CaixaBank  Research,  2017).  Short  contracts  also 
for  both  workers  and 
give 
employers  to  invest  in  continuous  education  and 
job-specific training, thus hampering investment in 
human 
face 
significantly higher risks of poverty and tend to be 
to  detrimental  physical  and 
more  exposed 
psychosocial  working 
conditions,  weaker 
occupational  health,  and  lower  safety  measures 
(Eurofound 2016) (Graph 4.3.5). They also tend to 
be  under-protected  by  unemployment 
and 
disability 
lower  pension 
insurance  and  have 
entitlements. 

capital.  Temporary  workers 

(24)  Source: Eurostat. Figures for Q3-2017. 

39 

-1500-1000-50005001000150000Q101Q102Q103Q104Q105Q106Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q118Q1thousands, year on year changesPermanent employeesTemporary employeesSelf employmentOverall 
 
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.5:  Characteristics of temporary employment 

Graph 4.3.6:  Share of temporary contracts in total 

employment by sector, ES v. EU 

(1) Latest available data are used (Q3-2017 for the share of 
temporary contracts, 2014 for wage premium, 2016 for the 
other indicators). 
(2) "Transition to very short term" means transition from 
unemployment to contracts of 3 months or less. 
Source: Eurostat, Labour Force Survey, SILC. The wage 
premium is calculated in European Commission (2017a) 
based on the EU Structure of Earnings Survey 2014. 

373 000 

Policy  initiatives  aimed  at  fighting  abuse  of 
temporary  contracts are bearing fruit. In  2016, 
some 
contracts  were 
temporary 
investigated (21 % more than in 2015), resulting in 
22 %  of  them  being  transformed  into  indefinite 
contracts (25). The new legal framework for labour 
inspectorates and increased resources seem to have 
led to increased efficiency and capacity (including 
IT  tools)  and  improved  coordination  with  other 
institutions,  while  the  fight  against  the  abuse  of 
temporary  contracts  in  certain  sectors  is  receiving 
priority.  There  are plans  to  reduce  the  reliance on 
fixed-term  employment  in  the  Spanish  public 
sector 
for 
through 
permanent posts. 

recruitment  competitions 

(25)  Source: Ministry of Employment and Social Security. 

Source: Eurostat 

The  involvement  of  social  partners  in  policy 
design  has  been  strengthened  recently,  but 
there is still room for improvement. The current 
framework  allows  social  partners 
to  actively 
participate  in  the  European  Semester,  although 
planning  is  not  always  timely  and  consultation 
often  not  focused  on  content.  Through 
the 
comprehensive  agenda  of  quality  in  employment 
(Agenda  integral  de  calidad  en  el  empleo),  the 
government launched four tripartite roundtables in 
February  2017  on  employment  and  jobs  quality, 
training, 
social 
protection  and  the  social  card,  and  health  and 
safety. Bipartite 
collective 
negotiations 
bargaining  (i.e.  on  a  national  wage  pact)  faced 
several  delays  in  2017  due  to  the  difficulty  in 
reaching  an  agreement  satisfying  both  parties. 
Nevertheless,  an  agreement  was  reached  on  the 
increase of the minimum wage. 

unemployment, 

long-term 

on 

4.3.2.  EDUCATION AND SKILLS 

Although  improving,  gaps  in  education  and 
skills mismatches  persist.  In a  context  of overall 
low  employability  of  tertiary  graduates  (Section 
4.3.1), the share of tertiary graduates employed in 
jobs  that  do  not  require  higher  education  was 
39.7 %  in  2016  (EU  average:  23.5 %).  Over-
skilling is particularly frequent in Spain, with 25 % 
of  workers  being  over-skilled  in  both  literacy  and 
numeracy  (OECD  average:  16.4 %).  Over-skilling 
rates  among  non-EU-born  workers  reach  65 %. 

40 

05101520253035SharetemporaryTransitionunempl. to veryshort-termcontractTransitiontemporary topermanentcontractWage premiumpermanentIn work risk-of-poverty gaptemp. vs perm.%EU28Spain0%5%10%15%20%25%30%0%10%20%30%40%50%60%70%AgricultureManufacturingConstructionTradeTransportHospitalityICTFinancialProf. Serv.Public admin.EducationHealthEntertainmentOtherAll sectors2008Q22017Q2Difference with EU in 2017Q2 (RHS) 
 
                                                           
 
4.3. Labour market, education and social policies 

Under-skilling  is  also  widespread,  ranging  from 
15 %  of  workers  in  numeracy  to  17 %  in  literacy 
competencies  (OECD  average:  9 %).  At  the  same 
time,  low-skilled  workers  still  face  significant 
difficulties  in  accessing  the  labour  market.  The 
unemployment  rate  in  the  group  aged  20-64  was 
23.5 % in Q4-2017, 14 pps higher than for highly-
skilled workers. 

Despite  having  improved,  early  school  leaving 
(ESL)  rates  are  still  high  and  regional 
disparities  persist.  The  ESL  rate  decreased  from 
23.6 %  in  2013  to  18.3 %  in  2017  but  is  still 
around  8  pps  above  the  EU  average  (see  Box 
4.3.1).  Moreover,  the  rate  increases  to  38.1 %  for 
third-country  nationals  and  39 %  for  people  with 
disabilities  in  2016,  the  latter  being  among  the 
highest  rate  in  the  EU.  The  situation  still  varies 
greatly  across  regions.  Regional  ESL  rates  range 
between  7 %  and  26.5 %  (2017),  though  the 
difference has been falling since 2013 (Ministry of 
Education, Culture and Sports, 2017a). 

in 

Regional  differences  remain 
students’ 
performance in terms of skills. In the 2015 PISA 
study  Spanish  students  obtained  results  similar  to 
the EU average. While PISA results in reading and 
maths  have  improved  in  most  regions,  disparities 
across  regions  are  still  significant.  Students’ 
performance differs across autonomous regions by 
between 46 and 66 points – equivalent to one full 
school  year  –  in  the  three  tested  fields  (reading, 
maths  and  science).  This  divide  can  be  explained 
by  GDP  per  head,  employment  and  poverty  rates, 
level  of  education  expenditure  per 
family, 
student’s  economic  and  social  status.  Since 
education  is  a  regional  competence,  policies  also 
differ considerably. The institutional set-up allows 
for  coordination  through  the  exchange  of  best 
practices  and peer review  amongst regions,  but in 
practice  it  is  not  used  systematically.  Targeted 
measures  to  help  regions  improve  educational 
outcomes  have  so  far  only  had  a  small  effect  in 
reducing differences between them.  

The National Pact on Education is facing delays 
in  its  negotiation  in  Parliament.  The  Parliament 
has  already  agreed  on  a  National  Strategy  for 
University  Education  but  it  still  has  to  agree  a 
levels  of) 
National  Pact  on 
Education. The process was launched in December 
2016  by  creating  a  parliamentary  subcommission. 
All  along  2017,  representatives  from  different 

(non-university 

educational  sectors  were  invited  to  appear  in 
Parliament.  In  2018,  parliamentary  groups  are 
drafting  a  proposal 
the  Spanish 
to 
educational  system  expected  to  be  ready  halfway 
through the year. 

reform 

Reforms  in  teachers'  professional  development 
and  career  opportunities  are  not  envisaged 
before  conclusion  of  the  Pact.  The 
initial 
practical  training  of  teachers  and  the  pathway  to 
the teacher profession are planned to be reformed.  
Teachers'  unions  consider  that  budget  cuts  during 
their  working 
the  crisis  have  deteriorated 
conditions  (increase  of  teaching  hours,  fewer 
opportunities  for  lifelong  learning  courses  and 
tightened requirements for leaves). The high share 
of interim contracts affects the career perspectives 
of  many  teachers.  However,  in  a  survey  by  the 
Ministry  of  Education,  73 %  of  teachers  report  to 
be  satisfied  in  their  profession,  much  above  the 
(51 %  and  46 % 
OECD  and  EU  average 
respectively).  In  2017,  EUR 115 million  were 
allocated  to  training  and  improving  competences 
and mobility of teachers at all education levels and 
there  are  plans  to  reduce  the  non-university 
teachers' 
rates  with 
recruitment  competitions  for  permanent  posts  in 
the public sector (see Section 4.3.1). 

temporary  employment 

Spending  on  education  increased  over  the  last 
decade  but  remains  below  the  EU  average,  at 
4.3 %  of  GDP  in  2015.  From  2012  to  2015,  the 
share  of  total  public  expenditure  devoted  to 
education  increased  to  9.3 %,  still  below  EU 
average.  Set  against  a  steadily  growing  student 
population  (by  13.3 %  between  2005  and  2015), 
public  expenditure  for  education  in  real  terms 
increased by just 9.1 % over the past decade. 

The  2017  budget  law  envisaged  additional 
funding  for  the  education  system  and  an 
increased  replacement  rate  of  retired  teachers. 
Currently  one  out  of  four  teachers  has  an  interim 
contract,  the  highest  rate  since  2009.  To  reduce 
this high share, the government decided in 2016 to 
replace  100 %  of  permanently-employed  retiring 
teachers (rather than 50 % as in the previous years) 
and  steps  towards  this  goal  were  taken  in  early 
2018.  Furthermore,  in  2017  EUR 392 million  was 
allocated by the Ministry of Education to regional 
measures  for  new  initial  vocational  education  and 
training (VET) programmes. These are intended to 
lower  secondary 
open  up  new  pathways 

in 

41 

 
4.3. Labour market, education and social policies 

Recommendation  to  foster  cooperation  between 
universities  and  businesses.  Yet,  stakeholders 
identify  a  lack  of  funding,  limited  capacity  of 
SMEs  to  take  in  interns  or  researchers,  and 
excessive  bureaucracy  as  the  main  obstacles  for 
cooperation. 

to  34.8 

Enrolment in vocational education and training 
(VET)  has  decreased  slightly  from  35.2 %  in 
2014 
in  2016.  By  contrast,  adult 
participation  rate  in  learning  has  decreased  from 
11.4 %  in  2013  to  9.4 %  in  2016  below  the  EU 
the 
average  of  10.8%.  Spain 
reorganization  of  the  "training  for  employment" 
subsystem  (subsistema  de  formación  para  el 
empleo)  in  July  2017  and  plans  to  improve  the 
evaluation  and  validation  of  professional  skills, 
including those in the education sector. 

completed 

education  and  help  vulnerable  households  with 
children  of  school  age.  EUR 20 million  was 
allocated  to  the  territorial  cooperation  programme 
PROEDUCAR, whose goal is to retain students in 
the school system and bring back early leavers. 

Spain's  tertiary  education  attainment  rate 
exceeds the EU average and differs strongly by 
gender.  47.5 %  of  women  have  a  tertiary  degree 
compared  to  34.8 %  of  men.  The  overall  tertiary 
educational attainment rate for people 30-34 years 
old (41.2 %) remains above the EU average, but is 
still  below  the  national  Europe  2020  target  of 
44 %. Furthermore, the gap between Spanish-born 
and  non-EU-born  students  is  large (45.2 %  versus 
25.1 %),  as  is  the  gap  between  people  with  and 
without disabilities (19.9 pps versus an EU average 
of 13.6 pps.). (26) 

Tertiary  graduates  face  difficulties  in  finding 
jobs matching their education level. Since 2013, 
the employment rate of tertiary graduates increased 
by 5.5 pps to 72.3 % in 2016, which is still below 
the  EU  average  and  the  national  pre-crisis  rate  of 
85.3 %.  In  2015  Spain  designed  an  employability 
map  for  tertiary  graduates  with  the  aim  of  raising 
students’  awareness  of  their  future  employment 
prospects, which currently is being updated. 

Several  challenges  in  higher  education  remain 
unsolved.  In  December  2016  the  government 
adopted  a  strategy  for  higher  education,  which 
envisages  the  modernization  of  the  governance 
structures,  including  further  autonomy  to  assess 
their  performance  and 
institutional  capacity. 
Besides,  plans  are  to  address  the  in-job  training 
challenges  and  reinforce  cooperation  with  the 
private  sector.  It  is  too  early  to  assess  its 
effectiveness. 

Some  steps  have  been  taken  to  improve  the 
teaching  of  digital  skills.  Despite  an  increasing 
number  of  Spaniards  going  online,  raising  digital 
skills  levels  remains  a  key  issue  for  supporting 
longer-term  productivity  growth.  45 %  of 
individuals between 16 and 74 years old had no or 
low digital skills in 2017. ICT specialists represent 
a  low  share  of  the  workforce  (3 %  compared  to 
3.7 %  in  the  EU).  Spain  has  a  high  share  of 
graduates  holding  a  STEM  (Science,  Technology 
and  Mathematics)  degree  with  21.6  graduates  per 
1000 individuals. The use of ICT in teaching is one 
of  the  issues  to  be  addressed  by  the  proposed 
National  Pact  on  Education.  In  October  2017,  the 
government  adopted  the  latest  Spanish  Digital 
Competence  Framework  for  Teachers  to  improve 
teaching  skills  in  ICT  and  has  designed  a  Digital 
Competence  Portfolio  for  teachers  to  register  and 
through 
their  digital  competences 
improve 
continuous self-assessment.  

University-business  cooperation  on  education 
improved,  but  barriers  remain.  The 
has 
Industrial PhD programme for training researchers 
in  companies 
is  seen  as  a  positive  policy 
development  by  all  actors  involved.  In  2015,  the 
Torres  Quevedo  programme  supported  200 places 
for students or graduates in private companies with 
EUR 15 million.  Some  regional  administrations 
and  universities  are  particularly  proactive 
in 
2016  Country-Specific 
responding 

the 

to 

(26)  Source:  European  Union  statistics  on  income  and  living 

conditions (EU-SILC) 

Digital  skills  training  for  young  unemployed  is 
key  to  improve  their  labour  market  access.  In 
order to match the demand for specialists in digital 
technologies,  the  Government  (through  the  public 
entity  red.es)  has  launched  a  grant  program  to 
promote training and employment of young people 
in  the  Digital  Economy  called  "Profesionales 
digitales"  (Ministry  of  Energy,  Tourism  and 
Digital  Agenda,  2017).  The  programme  offers  on 
the  one  hand  training  that  meets  the  requirements 
of  the  digital  industry  and  new  business  models, 
and  on  the  other  hand  facilitates  young  people's 
access  to  jobs  in  this  sector.  EUR 19.75 million 

42 

 
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.7:  At risk of poverty and social exclusion and its 

subcomponents 

Source: Eurostat, EU-SILC. 

In-work poverty is closely linked to households’ 
work-intensity,  with  strong 
labour  market 
segmentation playing a big role. In 2016, 13.1 % 
of  employed  people  were  at  risk  of  poverty,  0.6 
pps  higher  than  in  2014.  In-work  poverty  was 
especially  high  for  non-EU-born  (33.5 %),  people 
with  low-educational  attainment  (21.2 %),  and 
with  less  stable  jobs,  such  as  part-timers  (24.3 %) 
and  temporary  workers  (20.9 %)  (Graph  4.3.9). 
Workers  with  children,  and  especially  single 
parents, were the most likely group to suffer from 
in-work  poverty.  Social  policies  do  not  cater 
specifically  for  this  group  as  there  are  no  social 
assistance top-ups.  

The poverty-reducing impact of social transfers 
(other than pensions) for the overall population 
continues to decline. It decreased by 7.6 pps since 
2013 to reach 24.4% in 2016, that is 8.5 pps below 
the EU average. This reflects, among other things, 
the 
low  effectiveness  of  working-age  social 
benefits  (due  in  particular  to  low  coverage),  and 
the  fact  that  during  the  economic  recovery,  the 
median  income  of  employed  people has  increased 
faster than for benefit recipients. The adequacy of 
schemes (European 
minimum 
Commission,  2017b)  and  family  benefits 
in 
particular  is  low.  As  concerns  unemployment 
benefits,  Spain  ranks  close  to  or  above  the  EU 
average  on  adequacy  and  coverage  of  short-term 
unemployed  people,  although  their  duration  (with 

income 

(about 98 % of the total budget) have been already 
allocated  to  projects  in  15  regions.  Furthermore, 
the  Spanish  National  Coalition  for  Digital  Skills 
and Jobs became operational in 2017. 

4.3.3.  SOCIAL POLICIES 

As  the  social  situation  continues  to  improve 
thanks to  the steady economic  and  job growth, 
a  challenge  is  to  ensure  that  positive  impacts 
reach  all  groups.  In  2016,  the  share  of  people  at 
risk  of  poverty  or  social  exclusion  further 
decreased  to  27.9 %  (accounting  for  almost  13 
million people) from 28.6 % in 2015, but remains 
4.1 pps above the 2008 rate and about 5 pps above 
the  EU  average  (27).  The  economic  recovery 
translated into less people living in severe material 
deprivation  and  in  jobless  households  (Graph 
4.3.7).  However, 
the  at-risk  of  poverty  rate 
(measured  on  2015  income  data  (28))  remained 
almost  stable  since  2014  (22.3 %  in  2016)  and  is 
expected to continue to do so in 2017 (29). The risk 
of poverty or social exclusion is especially high for 
children,  the  unemployed,  people  living  in  single 
earner  households  and  people  with  disabilities. 
Migrants  are  also  disproportionately  affected,  as 
51.4 %  of  non-EU-born  people  were  at  risk  of 
poverty  and  social  exclusion  in  2016  (a  27.6 pps 
gap compared to the native-born). 

shows 

living  below 

The  depth  of  poverty 
signs  of 
improvement  for  all  age  groups.  The  average 
the  poverty 
income  of  people 
threshold  -  typically  the  long-term  unemployed 
and their children - slightly increased in 2016. For 
the first time in ten years, the difference in poverty 
gaps  between  the  working  age  population  (18-64) 
and  the  elderly (65  and older) started  to decrease. 
The share of people affected by persistent risk-of-
poverty (30)  decreased  to  14.8 %  in  2016,  but  is 
still  4 pps  above  the  2008  levels  and  the  EU 
average. 

(27)  Source: EU-SILC 
(28)  Income data from EU-SILC in a given release refer to the 
previous year for all Member States except IE and UK. 

(29)  Eurostat flash estimates, see Chapter 1. 
(30)  The share of people with an equivalised disposable income 
below the risk-of-poverty threshold in the current year and 
in at least two of the preceding three years. The threshold is 
set  at  60 %  of  the  national  median  equivalised  disposable 
income. Source: Eurostat (EU-SILC). 

43 

05101520253035050607080910111213141516% of populationAt-risk-of-poverty-or-social-exclusion rateAt-risk-of-poverty rateSevere material deprivationPeople living in low work intensity households 
                                                           
 
4.3. Labour market, education and social policies 

large.  Most  regions  capped  the  minimum  income 
at the IPREM (32) level, while some reach the level 
of  the  minimum  wage  and  just  a  few  (such  as 
Navarra  and  the  Basque  Country)  go  above  it. 
European  Commission's  Joint  Research  Centre 
calculations  based  on  simulations  with 
the 
Euromod  model  indicate  a  large  gap  between  the 
that  could 
potential  number  of  beneficiaries 
receive  income  support under  the  current  regional 
minimum  income  schemes  and  the  actual  number 
of beneficiaries. This gap varies across regions and 
is  partly  due  to  non-take-up  and  to  budgetary 
constraints  applied  to  these  schemes  in  most 
regions,  which  result  in  eligible  individuals  not 
receiving  support.  Andalucía,  Balearic  Islands, 
Catalonia  and  Navarra recently  reviewed  their 
income  schemes,  with  a  potential 
minimum 
positive impact on their coverage and adequacy. 

of 

degree 

coordination 

The 
between 
employment  and  social  services  varies  across 
regions.  Social  services  are  still  largely  working 
outside  the  scope  of  employment  services  and 
vice-versa,  although  some  progress  was  made  at 
the  regional  level.  The  Social  Inclusion  Network 
aims  to  enhance  collaboration  among  different 
levels 
administration.  Cooperation 
agreements between public employment and social 
services have been signed in a few regions in 2017. 

the 

of 

The  relative  child  poverty  rate  is  one  of  the 
highest  in  the  EU,  although  it  is  declining. 
Social  protection  for  families  remains  low  and 
fragmented. Public spending on family benefits in 
2014 was 1.3 % of the GDP, compared to 2.4 % at 
EU  level.  The  impact  of  social  transfers  on 
reducing  child  poverty  is  below  the  EU  average 
(17.5 % in 2016 in comparison to 39 % in the EU 
in  2015)  and  deteriorates  since  2013.  This  partly 
results  from  a  low  level  of  spending  on  family 
benefits.  Improving 
labour  market  conditions 
contributed  to  a  decline  in  the  share  of  children 
living in jobless households, from 14.2 % in 2014 
to  11.6 % 
in  2016.  Among  children  whose 
parent(s) work risk of poverty is among the highest 
in  the  EU28 (22.8 %),  in  particular  if  only  one of 
the  parents  is  working  (42.7  %  in  2016,  3.2  pps 
more than in 2015).  

(32)  Indicador  Público  de  Renta  de  Efectos  Múltiples  –  Public 
Indicator of Income for Multiple Purposes, used since 2004 
as a reference of income for social protection programmes.  

a  work 
comparatively low31. 

record  of  at 

least  one  year) 

is 

Graph 4.3.8:  At-risk-of-poverty gap 

The relative median at-risk-of-poverty rate gap is calculated 
as the difference between the median equivalised 
disposable income of people below the at-risk-of-poverty 
threshold and the at-risk-of-poverty threshold, expressed as 
a percentage of the at-risk-of-poverty threshold (cut-off 
point: 60% of median equivalised income).  
Source: Eurostat, EU-SILC. 

to 

address 

intended 

Initiatives 
limited 
effectiveness,  fragmentation  and  disparities  in 
income guarantee schemes are progressing very 
slowly.  The  study  to  map  income  guarantee 
schemes  at  national  and  regional  level  conducted 
in  2016  is  not  yet  published  and  the  follow-up 
action  plan  is  still  in  preparation.  Apart  from  the 
planned  integration  of  the  three  unemployment 
assistance  schemes  managed  at  national  level 
(Section  4.3.1),  the  government  announced  the 
launch  of  a  "social  card"  meant  to  integrate 
information  on  cash  benefits  received  from  all 
administrations  at  national,  regional,  and  possibly 
local  level.  The  card  is  intended  to  ensure 
transparency  of  benefits  received  and  facilitate 
participation in associated activation measures, but 
will  not  per  se  address  the  fragmentation  of  the 
existing schemes.  

Differences in the coverage and adequacy of the 
income  schemes  remain 
regional  minimum 

31  According  to  the  benchmarking  exercise  in  the  area  of 
unemployment  benefits  and  active  labour  market  policies 
conducted  within  the  EMCO  Committee.  See  the  draft 
Joint  Employment  Report  2018  for  details  (European 
Commission, 2017b). 

44 

051015202530354045050607080910111213141516%Children (<18y)Working age (18-64)Elderly (65+)Total 
 
                                                           
                                                           
The share of children below 3 years enrolled in 
formal  childcare has  steadily  increased  and  is 
above  the  EU  average  (39.7 %  vs.  30.3 %). 
However,  participation  rates  are  low  in  public 
centres,  and  regional  disparities  persist.  The 
National Schools Council has highlighted the need 
to  create  more  places  for  children  aged  0  to  3 
(Ministry of Education, Culture and Sport, 2017b).  

Graph 4.3.9:  In-work poverty by employment type 

(1) Employed people with an equivalised disposable income 
below 60 % of the national equivalised median income. 
Source: Eurostat, EU-SILC. 

reflect 

leavers 

High  rates  of  early  school  leaving  and  child 
poverty are a risk for equality of opportunities. 
Spain's Gini coefficient edged down 0.1 pp in 2016 
but  with  34.5  was  still  one  of  the  highest  in  the 
EU. The polarisation of skills and the high rate of 
early  school 
inequalities  of 
opportunities  (Doménech  2016,  Castelló  and 
Doménech 2014). The high share of children with 
parents  at  risk  of  poverty  or  social  exclusion 
weighs  on  the  capacity  of  Spain  to  reduce 
inequalities  in  the  long  term,  as  the  socio-
economic  background  of  children  has  a  negative 
impact on their chances to do well in school. The 
impact  of  socio-economic  status  on  PISA  science 
results  for  the  15-year  olds  is  close  to  the  EU 
average,  but  had  slightly  deteriorated  in  2015 
compared to 2006.  

Finding  affordable  housing  is  a  challenge  for 
the  most 
some 
improvements.  The  housing  costs  overburden 

vulnerable, 

despite 

4.3. Labour market, education and social policies 

rate (33) for the lowest income quintile was 38.4 % 
in 2016, compared to 36.3 % in the EU (in 2015). 
This  is  despite  the  establishment  of  the  Social 
Housing  Fund  in  2013  to  relieve  the  situation  of 
those  unable  to  pay  their  mortgage,  housing  bills 
or rent, for which eligibility exceeds half a million 
households (Bank of Spain 2014, 2016). Access to 
social  housing  is  limited  and  less  than  0.01 %  of 
GDP 
social 
protection, which in 2017 decreased by 19 % from 
2016 in nominal terms. 

to  housing-related 

is  devoted 

launched  have  brought  down 

Energy  efficiency  measures  have  alleviated 
energy  poverty  as  a  side  effect.  The  share  of 
people  at  risk  of  poverty  who  are  unable  to  keep 
their  homes  adequately  warm  increased  from 
17.1 %  to  23.3 %  between  2005  and  2015  (above 
the  EU  average)  mainly  due  to  the  economic 
recovery  and 
downturn.  However,  economic 
measures 
this 
indicator  by  5%  in  the  year  2016.  As  of  2017 
amended criteria to obtain the so called social tariff 
("bono  social")  seek  to  better  target  the  low 
income  households  and 
the 
protection of vulnerable consumers. For the period 
2014-2020, Spain allocated significant amounts of 
EU  cohesion  policy  funds  to  energy  efficiency 
measures,  in  particular  in  the  residential  sector. 
to 
This 
adequately heat their homes, a positive side effect 
from  Spain's  efforts  to  fulfil  its  EU  2020  energy 
efficiency commitments (Section 4.5.2). 

to  enable  more  people 

is  expected 

strengthen 

to 

The  provision  of  long-term  care  services  keeps 
improving,  but  needs  are  unevenly  met  across 
regions.  The  number  of  people  receiving  long-
term care services increases steadily, with 11.44 % 
more  people  receiving  such  care  in  2017  than  in 
2016.  However,  about  a  quarter  of  people 
recognised  as  dependent 
(315 000  out  of 
1.26 million)  were  on  a  waiting  list  in  November 
2017. In 2017 all regions reduced their waiting list 
to different degrees. The cost per care recipient is 
slowly  decreasing  and  job  creation  in  long-term 
care  services  was  stable  in  the  first  semester  of 
2017.  Untrained  informal  carers  –  mostly  female 
relatives  –  still  provide  a  substantial  part  of  the 
care. In December 2017 the government increased 

(33)  Share  of  people  living  in  households  where  total  housing 
costs make up over 40 % of the total disposable household 
income  (both  figures  net  of  housing  allowances).  Source: 
EU-SILC. 

45 

051015202530050607080910111213141516% of employedTotalTemporaryPart-time 
 
                                                           
4.3. Labour market, education and social policies 

its  funding  for  the  provision  of  long-term  care  by 
5.3 %. 

Inequalities  in  access  to  health  care  are  low 
compared  to  the  EU  average,  although  they 
have  slightly  increased.  Spain  has  one  of  the 
lowest  rates  of  reported  unmet  needs  for  medical 
care  in  the  EU.  The  difference  in  self-declared 
unmet  need  for  medical  examination  between  the 
lowest  and  highest  income  groups  has  however 
increased from 0.2 pps in 2008 to 1.6 pps in 2014. 
While  this  gap  remains  below  the  EU  average,  it 
constitutes  a  significant  change  (OECD,  2017c). 
Furthermore,  out-of-pocket  medical 
spending 
exceeds the EU average by 50 % (3.5 % of overall 
expenditure against 2.3 % in the EU). 4.4 % of the 
population  stopped  taking  prescribed  medications 
because they were too expensive (34). Disparities in 
access to healthcare are also sizeable. For instance, 
waiting times for surgery vary between 50 and 160 
days across regions, and there are between 2.7 and 
5.3  doctors  per  1000  population  (35).  Although 
competences 
for  healthcare  organisation  and 
delivery  are  devolved  to  the  regional  health 
ministries, there is an Inter-territorial Council that 
can serve as a forum for coordination. 

(34)  Source: National Health Barometer (2016)  
(35)  2015 Atlas on Variations in Medical Practice 

46 

 
                                                           
4.4. INVESTMENT 

4.4.1.  EXTERNAL COMPETITIVENESS * 

Graph 4.4.1:  Change in the balance of trade goods and 

services: exports and imports contribution 

to 

stabilise 

the  net 

for  Spain 

is  unprecedented 

Increasing  exports  of  goods  and  services  have 
supported a continued current account surplus. 
In 2017, the Spanish current account is expected to 
have  been  in  surplus  for  the  fifth  year  in  a  row, 
which 
in  an 
expansionary  phase.  The  cyclically  adjusted 
current  account  (estimated  at  2.0 %  of  GDP  in 
2017) is now above both the level suggested by the 
fundamentals  (0.4 %  of  GDP)   and  the  level 
required 
international 
investment  position  (NIIP)  at  prudential  levels  in 
the  medium  term  (36)  (about  0.2 %  of  GDP)  
(European  Commission,  2017e).  Around  80 %  of 
the  current  account  improvement  between  2007 
and  2017  is  explained  by  the  improvement  of  the 
balance  of  trade  in  goods  and  services,  of  about 
10 pps of GDP.  Exports rose  about  three  times  as 
much  as  imports  declined  in  absolute  terms  (see 
Graph  4.4.1).  Although  transitory  factors,  such  as 
low  oil  prices,  contributed  to  the  improvement  of 
the  trade  balance,  structural  factors  have  become 
increasingly important drivers. 

improvement 

An increase in the number of regular exporting 
firms  and  their  geographical  diversification 
mark  a  structural 
in  export 
performance.  The  internationalization  of  Spanish 
firms has continued, encouraged by the collapse of 
domestic  demand  in  the  early  stages  of  the  crisis, 
and  backed  by  the  cost  competitiveness  gains 
accumulated since then (see Box 4.4.1). According 
to  ICEX,  the  Spanish  Institute  for  Foreign  Trade, 
the  number  of  regular  exporters  grew  by  27.3 % 
between  2007  and  2016,  and  the  geographical 
diversification of exports to fast-growing emerging 
markets has increased. Moreover, the composition 
of  exports  shifted  towards  more  medium-high 
technology  goods  (especially  vehicles)  and  high 
value added services (by about 2 % of GDP since 
2014). These structural factors have led to a steady 
increase  in  real  export  market  shares  since  2013. 
Despite 
their  positive  performance,  Spanish 
exports  are  still  concentrated  on  goods  competing 
mainly on price.  

(36)  I.e. at -36 % of GDP by 2025.   

(1)A negative (positive) contribution indicates an increase 
(decrease) in imports or a decrease (increase) in exports. 
Source: Eurostat and own calculations. 

reliance 

increased 

economy's 

The 
on 
domestically  produced  goods  has  restrained 
import growth. The sectoral rebalancing since the 
crisis  has  resulted  in  a  higher  weight  of  export-
oriented  activities  in  the  Spanish  economy  (see 
Box 4.4.2).  This  has  taken  place  in  the  context  of 
increasing  participation  of  Spain  in  Global  Value 
Chains  (GVC)  (Prades  and  Villanueva,  2017). 
Given  the  traditionally  high  import  content  of 
exports,  this  should  have  gone  hand  in  hand  with 
higher import intensity. However, Spanish imports 
fundamental 
are  growing  below  what 
determinants  would  suggest 
(see  Box 4.4.1). 
Although  the  import  content  of  Spanish  GDP 
components  increased  at  the  beginning  of  the 
recovery,  it  remains  below  the  pre-crisis  levels, 
especially  for  private  consumption  (see  Graph 
4.4.2). Firm-level data suggest that imported inputs 
seem  to  be  increasingly  replaced  with  cheaper 
domestic ones by Spanish firms (Banco de España, 
2017,  pp.  80-107).  Overall,  the  impact  of  Spain's 
internal  devaluation  since  the  beginning  of  the 
crisis on households and firms spending decisions 
seems to explain the modest rebound in imports.  

their 

47 

-6-4-20246810122000-20072008-2017% of GDPImports of servicesNon-energy goods importsEnergy goods importsExports of  servicesExports of goodsGoods and services balance 
 
                                                           
 
4.4. Investment 

Graph 4.4.2:  Import content of GDP components in Spain 

are projected to grow more slowly than in the rest 
of the euro area.  

in 

increase 

"tradable" 

in  a  marked 

Sectoral  wage  and  productivity  developments 
have  not  been  fully  aligned,  leading  to  unit 
labour  costs  diverging  substantially  across 
sectors.  Intense  job  destruction  during  the  crisis 
in  apparent 
resulted 
productivity  across  all  sectors,  but  during  the 
recovery  productivity  has  continued  to  increase 
mostly 
sectors 
predominantly  producing  goods  and  services  that 
can  be  traded  internationally  -  see  Box 4.4.2).  At 
the  same  time,  wages  have  not  been  aligned  with 
productivity  at  the  sectoral  level.  In  particular, 
wages  have  grown  faster  than  productivity  since 
2013Q2 mostly in "non-tradable" sectors, whereas 
the  opposite  has  happened  in  "tradable"  sectors. 
This has resulted in an uneven development of unit 
labour costs across sectors (Graph 4.4.3). 

sectors 

(i.e. 

Graph 4.4.3:  ULC by sector 

Source: INE, European Commission 

(1) Import content is defined as the directly or indirectly 
imported portion of each GDP demand (Bussière et al. 
2013).  
Source: Banco de España, based on WIODs 2016. 

Wage  moderation  continues  to  drive  cost-
competitiveness  gains.  From  2009 
to  2017, 
Spain's cost competitiveness compared to the EU – 
as  measured  by  the  real  effective  exchange  rate  – 
improved  by  around  11%  based  on  unit  labour 
costs  and  around  4%  based  on  export  prices. 
Despite  the  pickup  in  inflation,  wage  moderation 
has  continued  in  2017  further  to  the  structural 
reforms  implemented  in  previous  years  and,  more 
recently,  due 
to  a  negative  wage  drift  and 
composition  effects.  This  evolution  is  consistent 
with a wider trend of subdued wage growth among 
advanced  economies.  Wages  are  expected  to  pick 
up as the output gap turns positive. Together with 
aggregate  low  productivity  growth,  this  is  set  to 
lead  to  modest  increases  in  unit  labour  costs 
(ULC).  Nevertheless,  further  cost-competitiveness 
gains are still expected until 2019 as ULC in Spain 

48 

05101520253035000102030405060708091011121314%Private consumptionGovernment consumptionInvestmentExportsTotal/final demand-30-20-100102030TOTALTRADABLEAGRIENERMANUFTRADE, TRANS, HOSPITICTNON-TRADCONSFINPROF SERVART, HHNON-MARKETChange in ULC (%)2008Q1-2013Q22013Q2-2017Q1Total (2008Q1-2017Q1) 
 
 
4.4. Investment 

Box 4.4.7: Assessing structural changes in Spanish exports and imports of goods and 
services: long-run elasticities to demand and competitiveness 

Since  the  crisis,  Spanish  exports  have  grown  above  what  their  traditional  determinants  (growth  in  export 
markets and price-competitiveness) would suggest. At the same time, imports have evolved at a slower pace 
than implied by their fundamentals (final demand and price-competitiveness). These developments indicate 
that  there  has  been  a  structural  change  in  the  external  performance  of  the  Spanish  economy.  In  order  to 
identify the drivers of Spanish imports and exports as well as changes in their historic relationship, dynamic 
import  and  export  equations  have  been  estimated  (based  on  the  methodology  in  Christodoulopoulou  and 
Tkačevs, 2014), and the main results are presented in this box. (1)   

According to these estimates (2), export growth is mostly explained by growth in Spain's  export markets 
(Graph 1a).  The  impact  of  price  competitiveness  on  export  growth  was  negative  in  the  pre-crisis  period 
(1999-2007),  but  turned  positive  during  the  recovery  (2014-17).  At  the  same  time,  the  elasticity  to  price- 
competitiveness  is  less  than  one  (-0.81),  suggesting  the  responsiveness  of  Spanish  exports  to  changes  in 
prices  has  decreased  over  the  last  decade  (-1.3  previously  estimated).  This  suggests  that  Spanish  exports 
have  become  less  reliant  on  price  competitiveness,  which  can  be  explained  by  the  change  in  the 
composition  of  Spanish  exports  towards  goods  and  services  with  higher  value-added,  which  are  less 
sensitive  to  price  developments (IMF,  2017,  pp.  22-34;  Prades  and  García,  2015).(3)  In  addition,  Spain's 
relatively  high  participation  in  Global  Value  Chains  (GVC)  helps  insulating  export  performance  from 
exchange rate movements.  

Graph 4.4.7.a: Main determinants of Spanish exports  

Graph 4.4.7.b: Long term elasticities of imports (2) 

                          and imports performance(1)  

(1) Contributions to exports and imports of goods and services annual growth. Statistically significant  
(2) The rolling-window estimate uses fixed windows of 40 quarters starting in 1980 and ending in 2016. 
Source: Own calculations on National Accounts data  Eurostat, OECD and Banco de España. 

The collapse of domestic demand during the crisis encouraged Spanish firms to internationalize and look 
for other markets, therefore supporting export growth. This process does not appear to have been reversed 
during the recovery, as the recovery in private consumption does not have a significant negative impact on 
exports (see Graph 4.4.7.a), confirming that exporters have consolidated their presence in foreign markets – 
as also highlighted by the increasing geographical diversification of Spanish exports and the increase in the 
number  of  regular  exporters.  Finally,  the  positive  residuals  indicate  that  exports  have  been  growing 
systematically above  their  fundamentals,  supporting  the  hypothesis  of  a  structural  change  in  export 
performance.  

A dynamic equation is also estimated for imports of goods and  services (4), and it emerges that domestic 
demand  has  been  the  main  driver  of  import  growth  since  1999,  while  the  contribution  of 
competitiveness  has  been  limited  (Graph 4.4.7.a).  During  the  crisis,  only  exports  had  a  positive 

49 

-1.5-1-0.500.511.522.53000102030405060708091011121314151617%Long term income elasticity of importsLong term price elasticity of imports-8-6-4-20246810-8-6-4-202468101999-20072008-20132014-20171999-20072008-20132014-2017Real exportsReal importsContributions to imports annual growth, %Contributions to exports annual growth, %Export marketsDomestic demandPrivate consumptionExport of goods and servicesCompetitivenessResidualsExport of goods and servicesImport of goods and services 
 
 
4.4. Investment 

contribution to import growth. The negative residuals in the recovery years indicate that, contrary to exports, 
imports  are  growing  less  than  implied  by  their  fundamentals,  again  indicating  a  structural  change  in  the 
relationship. This has taken place in a context of an increase in exports, which should have normally boosted 
import  growth,  given  their  high  import-content.  Indeed,  firm  level  data  reveal  a  certain  degree  of  import 
substitution  during  the  current  recovery  (Banco  de  España,  2017,  pp.  52-79).  At  aggregate  level,  the 
sensitivity  of  Spanish  imports  to  income  seems  to  have  declined  since  the  crisis,  whereas  price-
elasticity has remained relatively stable (Graph 4.4.7.b).  

(1)  The estimated sample period extends from Q1-1995 to Q4-2015. As the series are non-stationary in levels, but they are 

in first differences, an error correction model is estimated, using non-linear least squares in a single step. 

(2)  ∆𝑋𝑡 = 𝛾 (𝑋𝑡 − 𝛼𝐹𝐷𝑡 − β 𝐶𝑜𝑚𝑝𝑡) +  𝛿 ∆𝐹𝐷𝑡−𝑖   +  𝛾 ∆𝐶𝑜𝑚𝑝𝑡−𝑖   +  𝜇 ∆𝑃𝐶𝑡−𝑖 + ℰ𝑡, where X represents Spanish exports 

of goods and services, FD foreign demand, Comp competitiveness and PC private consumption. 

(3)  By contrast, the long-run elasticity of Spanish exports to foreign demand is close to one.  
(4)  The specification of imports equation is given by ∆𝑀𝑡 = 𝛾 (𝑀𝑡 − 𝛼𝐷𝐷𝑡 − ƿ𝑋𝑡 + β 𝐶𝑜𝑚𝑝𝑡) +  𝛿 ∆𝐷𝐷𝑡−𝑖   + 𝜇 ∆𝑋𝑡−𝑖   +
 𝛾 ∆𝐶𝑜𝑚𝑝𝑡−𝑖   + ℰ𝑡 To take into account the different import content of domestic demand (DD) and exports (X), both 
variables are included separately in the equation, as well as a competitiveness indicator. 

and  communication  sector  (see  Graph 4.4.5).  This 
suggests  that  digitisation  is  an  important  factor  at 
play  in  this  evolution,  and  points  to  the  existence 
of obstacles hampering the diffusion of innovation 
(Adalet McGowan et al., 2017). This interpretation 
is  supported  by  the  relatively  low  share  of  firms 
with product, process, or marketing innovations in 
Spain,  and  under-investment  on  average  in  ICT 
assets  and  intangible  capital.  Those  asset  types 
have  been  shown  to  differentiate  firms  at  the 
global  productivity  frontier  from  those  lagging 
behind (Thum-Thysen et al., 2017). 

Graph 4.4.4:  Spain's productivity gap vs. average of 

Germany, France and Italy, 2010 EUR/hour 

4.4.2.  PRODUCTIVITY 

recorded 

subsectors  have 

telecommunications 

Some 
sizeable 
productivity  increases  since  the  crisis,  largely 
due  to  intra-sectoral  resource  reallocation.  In 
aggregate  terms,  apparent  productivity  (i.e.  value 
added per person employed) in Spain is below that 
of  other  large  euro  area  countries.  However, 
agriculture, construction, accommodation and food 
services,  as  well  as 
(a 
subsector of ICT) are areas which make up a high 
share  of  Spanish  gross  value  added  (GVA),  and 
where  in  2016  productivity  was  higher  than  in 
other  euro  area  peers  (Graph 4.4.4).  In  addition, 
the productivity gap between Spain and other large 
euro  area  countries  has  been  reduced  in  some 
subsectors.  These  include  electrical  equipment; 
legal,  management  and  engineering  services; 
furniture and jewellery; transportation and storage, 
business  services;  and  manufacturing  of  transport 
equipment.  Some  of 
these  subsectors  have 
recorded significant employment growth since the 
crisis,  pointing  to  an  improvement  in  allocative 
total  economy 
efficiency.  However,  for 
sectoral  reallocation  of 
towards  more 
productive  sectors  has  had  a  limited  role  in 
explaining  aggregate  productivity  growth  (Box 
4.4.8).  

the 
labour 

the  most 
The  productivity  gap  between 
productive  firms  and  the  others  seems  partly 
due  to  differences  in  innovation  capacity  and 
investment  in  knowledge-based  capital.  The 
productivity  gap  increased  during  the  crisis,  with 
the largest divergence occurring in the information 

Source: Eurostat 

50 

-50%-40%-30%-20%-10%0%10%20%30%40%50%AgricultureManufacturingConstructionTradeTransportationHospitalityICTFinancialReal estate activitiesProfessional servicesAdministrativeNon-market servicesEntertain. householdTotalGap 2007Gap 2016Change in productivity gap 
 
 
 
4.4. Investment 

Box 4.4.8: Sectoral rebalancing in Spain 

Since the onset of the crisis, tradable (1) sectors have increased their overall share in gross value added 
(GVA) of the Spanish economy. During the crisis (2008-2013), the collapse of construction (a non-tradable) 
was accompanied by a sharp fall in manufacturing (a tradable). At the same time, the share in total GVA of 
non-market services (also a non-tradable) increased, as its output remained relatively stable in a period when 
most other sectors shrank. As a result, there was only a small increase in the overall weight of tradables in 
the  economy  in  those  years  (Graph  4.4.8.1.a).  But  since  the  recovery  started,  most  tradable  sectors  have 
grown  faster  than  non-tradable,  increasing  their  weight  in  total  GVA.  The  manufacturing  sector  has 
rebounded strongly since 2013, although its share of GVA is still below the pre-crisis level. Other tradable 
sectors,  such  as  wholesale  and  retail  trade,  transportation  and  storage,  and  ICT  have  also  increased  their 
share  in  GVA  in  the  same  period.  Interestingly,  tourism-related  activities  (food  and  accommodation 
services)  had  in  2016  a  lower  share  in  GVA than  in  2008.  At  the  same  time,  sectors  such as  professional 
services,  that are  traditionally  branded as  non-tradable  but  now export an increasing  share  of  their  output, 
have  also  expanded  strongly  during  the  recovery,  contributing  to  the  internal  rebalancing  process.  The 
increasing  trade  openness  since  the  crisis  has  been  a  common  phenomenon  for  both  tradable  and  non-
tradable sectors, and has been particularly marked in agriculture, manufacturing, and professional services 
(Graph 4.4.8.1.b). 

Graph 4.4.8.1: 

Change in share of GVA (1.a) and exports as % of gross output (1.b) by sector 

Source: INE, Eurostat, European Commission 

The relative share of tradable and non-tradable sectors in total employment has remained relatively 
stable since the crisis, although there have been substantial changes in some sectors. The largest changes in 
shares  of  total  employment  between  2008  and  2016  took  place  in  construction,  manufacturing,  and  non-
market services. The latter (mostly public services) increased their share in total employment as headcount 
remained relatively stable during the crisis at a time when most other sectors downsized (Graph 4.4.8.2.a). 
However,  the  evolution  of  total  employment  by  sector  is  somewhat  different.  Since  2013,  the  largest 
increases in total FTE employment (as opposed to changes in shares) have taken place in hospitality, public 
administration, trade, administrative and support activities, manufacturing, and professional services. 

The  different  evolution  of  value  added  and  employment  underlines  substantial  divergences  in  apparent 
productivity growth across sectors. Whereas productivity increased due to job destruction in most sectors 
during the crisis, both tradables and non-tradables, it has continued to grow mostly in the tradable sectors 
since  the  recovery  started  (Graph  2.b),  and  notably  so  in  some  sectors.  For  instance,  productivity  in 
manufacturing is now more than 25 % above its pre-crisis levels (Graph 4.4.8.2.b).  

However,  sectoral  rebalancing  has  not  been  an  important  driver  of  aggregate  productivity  growth. 
Only 17% of productivity growth in 2008-16 can be attributed to sectoral reallocation of labour resources, 
with 
the  remaining  83%  being  explained  mostly  by  productivity  growth  within  each  sector 
(Graph 4.4.8.3.b).  However,  since  2013,  sectoral  reallocation  has  had  a  positive  effect  on  productivity 

51 

-5%-4%-3%-2%-1%0%1%2%3%AgricultureManufacturingWholesale and retail tradeTransportation and storageAccommodation and foodICTTradableConstructionFinancial servicesProfessional servicesAdministrative servicesNon-market servicesRecreation and householdNon-Tradable1.a: Change in share of GVA, 2010 pricesCrisis (2008-13)Recovery (2013-16)Total (2008-16)01234567805101520253035404550Total EconomyTradable SectorsAgriculture    ManufacturingTradeTransportFood and…ICTTradable SectorsConstructionFinancial servicesProfessional servicesAdministrative and…Recreation and…Non-tradable sectors%%1.b: Exports as % of gross output2010 (LHS)2014 (LHS)Change (RHS) 
 
4.4. Investment 

growth.  Although  only  24%  of  the  increase  in  employment  since  2013  has  taken  place  in  above-average 
productivity  sectors,  there  has  been  a  change  in  the  relative  employment  weight  of  sectors  with  below-
average  productivity  that  has  nevertheless  resulted  in  a  modest  increase  in  aggregate  productivity.  For 
instance, household services, with very low productivity, have lost weight to food and accommodation, with 
higher  but  below  average  productivity  (Graph 4.4.8.3.a).  Intra-sectoral  resource  reallocation  seems  to 
account  for  a  large  share  of  within  sector  productivity  growth,  with  entry  and  exit  of  firms  playing  an 
important role in this process (Banco de España, 2014). Structural and institutional barriers, such as financial 
barriers,  labour  market  institutions,  skills  mismatches,  or  product  market  regulations  that  hinder  the  entry 
and exit of firms can therefore have negative effects on resource reallocation and productivity. 

Graph 4.4.8.2: 

Change in FTE employment (2.a), and change in productivity (2.b), by sector 

Source: INE, Eurostat, European Commission 

Graph 4.4.8.3:  Change in share of employment and productivity (3.a), and productivity and sectoral reallocation 

(3.b) 

3.a: Methodology based on Antipa (2008), "Productivity decomposition and sectoral dynamics", Banque de France 
Source: Eurostat, European Commission 

1   Tradable sectors: Agriculture, manufacturing, energy and related, trade, transport, food and accommodation, ICT. Non-
tradable  sectors:  Construction,  financial  services,  real  estate,  professional  services,  administrative  services, 
entertainment and household services, non-market services. 

52 

-2 000-1 500-1 000-50005001 000AgricultureManufacturingWholesale and retail tradeTransportation and storageAccommodation and foodICTTradableConstructionFinancial servicesProfessional servicesAdministrative servicesNon-market servicesRecreation and householdNon-tradable2.a: Change in FTE employment ('000s)Crisis (2008-13)Recovery (2013-16)Total (2008-16)-30%-20%-10%0%10%20%30%40%50%AgricultureManufacturingWholesale and retail tradeTransportation and storageAccommodation and foodICTTradableConstructionFinancial and insuranceProfessional servicesAdministrative servicesNon-market servicesRecreation and householdNon-Tradable2.b: Change in productivity (2010 EUR/hour)Crisis (2008-13)Recovery (2013-16)Total (2008-16) 
 
 
 
 
 
4.4. Investment 

Graph 4.4.5:  Distribution of labour productivity growth in 

Spain (real value added by employee) 

Average annual productivity growth rate between 2011 and 
2013. Values shown are for firms at the 99th, 90th, 50th, and 
10th percentile, and the mean, of productivity in the sector.  
Source: CompNet 

Misallocation  of  capital  also  contributed  to  the 
productivity  gap  across  firms,  but  there  are 
signs of improvement in recent years. Spain had 
a relatively high share of over-indebted firms at the 
beginning  of  the  recovery  (see  Section  4.2.1), 
which in 2013 held over 15 % of the capital stock 
(Adalet  McGowan  et  al.,  2017). Such  firms  could 
hamper  productivity  growth  by  tying  up  capital 
and  labour  resources  that  could  be  allocated  to 
more  productive  firms,  including  start-ups.  There 
is also evidence that in the pre-crisis years, capital 
tended  in  general  not  to  be  allocated  to  the  more 
innovative firms (Haugh et al., 2017). Recent firm-
level data show that new credit is now flowing to 
the  more  productive  and  less  indebted  firms 
(Banco  de  España,  2017d),  supporting  investment 
growth in productive capital (see Section 4.2.2). 

4.4.3.  RESEARCH, INNOVATION AND DIGITAL 

ECONOMY  

Spain  remains  a  moderate  innovator  with  a 
limited share of higher value-added activities in 
its  economic  structure.  Innovation  performance 
declined from 80.1% of the EU average in 2010 to 
78.3%  in  2016.(37)  Relative  strengths  of  the 
innovation system are in new doctorate graduates, 
broadband 
tertiary 

attainment, 

education 

(37)  Source: European Innovation Scoreboard 2017.   

in 

SMEs, 

innovative 

penetration, international scientific co-publications 
and  trademark  applications.  Relative  weaknesses 
are 
public-private 
collaborations and finance and support. In terms of 
human  resources,  Spain  has  a  shortage  of  ICT 
specialists  that  is  linked  with  the  low  digitisation 
of SME in sectors such as retail and wholesale (38), 
and general lack of digital skills in the population 
(Section 4.3.2.). 

the  strong  acceleration 

Persistently  subdued  levels  of  R&D  investment 
affect  Spain's 
innovation  performance  and 
productivity  growth.  Public  R&D  investment  in 
2016 was at the same level as in 2007 (0.55 % of 
GDP)  after  a  peak  in  2009-2010  (at  0.65 %). 
Despite 
in  economic 
activity,  current  public  R&D  intensity  remains 
well below the EU average (0.55 % vs. 0.69 % of 
GDP). R&D intensity (1.19 % of GDP in 2016) is 
on a decreasing trend since 2009 (1.35 %). This is 
strongly  affected  by  the  low  and  decreasing  level 
of execution of the public research and innovation 
(R&I)  budget  (56.2 %  in  2015).  In  the  current 
context,  reaching  the  national  EU2020  R&D 
intensity target of 2 % appears highly unlikely. 

The  new  State  Research  Agency  for  managing 
public research funding is now operational. The 
multi-annual framework that secures the resources 
of  the  agency  ("contrato  de  gestión")  is  pending. 
Nevertheless,  in  2017  the  agency  constituted  its 
Scientific and Technical Committee, established an 
annual work plan and started to develop evaluation 
methodologies.  Furthermore,  Spain  increased  the 
amount  of  funding  allocated  on  the  basis  of 
scientific performance in 2017. 

Whereas Spain's production of highly-qualified 
researchers  is  good,  their  career  perspectives 
and  science-business  mobility  are 
limited. 
Although  Spain  produces  an  average  number  of 
new  doctoral  graduates  and  an  above  average 
number 
(European 
STEM 
of 
Commission,  2018b), 
total  number  of 
researchers  is  low,  showing  the  limited  labour 
demand  for  researchers  (39).  Spain  has  introduced 
isolated incremental measures to address the most 
pressing  challenges  linked  to  the  segmentation  of 
the  academic  labour  market  (civil  servants  versus 

graduates 
its 

(38)  http://digital-agenda-data.eu/charts/analyse-one-indicator-

and-compare-countries 

(39)  Data: Eurostat. 

53 

-40%-20%0%20%40%60%80%100%120%140%160%MeanP10MedianP90P99 
 
                                                           
                                                           
4.4. Investment 

short-term contracts) and the low employment rate 
for  young  PhDs.  Public  research  organisations 
have  been  allowed  to  replace  all  researchers  who 
retire  and  post-doctoral  support  programmes  such 
as Juan de la Cierva and Ramón y Cajal have been 
reinforced. Programmes for PhD graduates such as 
Torres  Quevedo  help  incentivise  science-industry 
limited  mobility  of 
the 
links  and  address 
researchers to businesses. In contrast, the share of 
public-private  scientific  co-publications  in  total 
scientific publications is below EU average. 

Graph 4.4.6:  R&D intensity projections, 2000-2020 

(1) The R&D intensity projections based on trends are 
derived from compound annual growth in R&D intensity 
2007-2016. 
(2) EU: The projection is based on the R&D intensity target of 
3.0% for 2020. 
(3) ES: The projection is based on a tentative R&D intensity 
target of 2.0% for 2020. 
Source: DG Research and Innovation, Eurostat, Member 
State. 

High 

services 

represented 

(51.2 %  of 

Businesses'  innovation  capacity  remains  frail 
despite  some policy action. Knowledge-intensive 
services have a relatively low share of employment 
among 
the 
in  Spain 
employment  in  the  service  sector  vs.  58 %  as  EU 
medium-high-tech 
average). 
and 
manufacturing 
of 
31 % 
only 
employment  in  manufacturing  vs.  36.4 %  as  EU 
average  over  the  same  period.  Business  R&D 
intensity has been decreasing from its highest peak 
of 0.72 % of GDP in 2008 and reached 0.64 % of 
increase  business  R&D 
GDP 
launched  a  number  of 
investments,  Spain 
initiatives  and  support  schemes  improving  access 
to finance and the business environment (Sections 

in  2016.  To 

links 

4.2 and 4.4.2), and developed fiscal incentives for 
expenditures.  Nevertheless, 
business  R&D 
business-science 
remain  weak.  Public 
expenditure  on  R&D  financed  by  the  business 
sector  continues  its  decreasing  trend  since  2010 
and with just 0.034 % of GDP is much lower than 
the EU average of 0.052 % (40).  Revamped public 
schemes  such  as  the  "NEOTEC"  programme 
supporting  the  creation  of  tech-based  companies 
have contributed to strengthening entrepreneurship 
and  knowledge  transfer.  The  latter  has  also  been 
supported  by  the  "CIEN"  programme  that  funds 
involving 
strategic 
SMEs,  public  bodies  and  universities.  Tax 
incentives  for  business  R&D  are  generous  on 
paper, with implied R&D tax subsidy rates among 
the  highest  in  the  OECD.  However,  their  use 
remains  modest  in  Spain,  notably  for  SMEs,  and 
amounted  to  EUR 323 million  in  2017  (OECD, 
2017d).  Their  incremental  nature  and  a  long  time 
span  between  application  and  reimbursement 
decision may partly explain the low uptake. 

innovative  projects 

jointly 

Governance  of  national-level  R&I  policy  is 
being  streamlined.  In  2017  the  national-level 
competences  for policies  and private  R&I  support 
instruments  were  unified  under  one  department. 
The  new  National  Plan  for  Science,  Technology 
and  Innovation  2017-2020  includes  for  the  first 
time  a  mapping  of  all  support  schemes  from 
different  funding  bodies.  The  action  plans  on 
Industry  4.0  and  digital  economy  and  society 
similarly  aim  to  strengthen  synergies  and  avoid 
duplications of efforts. 

Despite recent improvements, national-regional 
coordination in the design, implementation and 
evaluation  of  R&I  policy  remains  weak.  A 
National  Coalition  for  Jobs  and  Digital  Skills  has 
been  created  and  the  “R+D+I  Public  Policy 
Network”  (REDIDI)  has  been  reactivated.  It  is 
intended to create synergies in the implementation 
of  the  national  and  regional  smart  specialisation 
strategies,  improve  the  use  of  ESIF  funds  and 
avoid  duplications.  Its  thematic  committees  (on 
R&I  in  energy,  health,  water,  tourism,  design  and 
evaluation and monitoring systems) have achieved 
first  results.  2017  also  witnessed  the  birth  of  the 
new  CERVERA  network  to  boost  the  transfer  of 
knowledge  and  science-business  links  between 
for 
accredited 

institutions.  Other  examples 

(40)  Source: Eurostat 

54 

0.00.51.01.52.02.53.03.50002040608101214161820R&D intensity, %ES - trendES - target (3)EU - trendEU - target (2) 
 
                                                           
4.4. Investment 

4.4.4.  BUSINESS ENVIRONMENT 

the  past 

Reforms  to  the  business  environment  have 
three  years.  Spain 
stalled  over 
introduced  important  regulatory  reforms  in  recent 
years  to  enhance  the  business  environment.  Yet, 
Spain 
in 
to 
entrepreneurship  and  other  business  environment 
indicators (European Commission 2017d). Despite 
these  challenges,  there  has  been  a  noticeable 
slowdown  in  the  adoption  of  reforms  in  this  area 
over the past few years.   

underperform 

continues 

throughout 

Spain.  While 

constitute  a  burden 

Regulatory  disparities  across  regions  continue 
to 
for  businesses. 
Differences  and  overlaps  in  regulations  governing 
the access to and exercise of economic activities in 
Spain can hamper the free movement of goods and 
services, as well as the establishment of firms in all 
sectors,  from  traditional  retail  to  the  collaborative 
economy.  The  Law  on  Market  Unity  aims  at 
facilitating  access  to  economic  activities  and  their 
expansion 
the 
government  has  taken  steps,  for  example,  by 
requiring an ex ante assessment of impact of draft 
legislation  on  market  unity  and  by  publishing  a 
catalogue  of  good  and  bad  practices, 
its 
implementation  has  been  slow,  especially  at  the 
regional level. Between June and November 2017, 
the  Spanish  Constitutional  Court  delivered  four 
judgements  on  the  Law  on  Market  Unity.  While 
the Court has endorsed the law, it has declared null 
and  void  selected  articles,  among  others  the 
provisions setting out the principle of nation-wide 
effectiveness  of  licences  and  prior  declarations 
granted  by  or  submitted  to  any  given  region.  The 
practical  consequences  of  the  rulings  for  the 
application  of  the  law  remain  to  be  seen,  since 
other  principles  laid  down  therein  –  namely,  the 
principles  of  “necessity  and  proportionality  of  the 
actions of the competent authorities” - can be used 
by  economic  operators  affected  by  barriers  to 
achieve  outcomes  similar  to  that  of  the  "nation-
wide effectiveness". 

The  Government  is  considering  measures  to 
remove  obstacles  to  business  growth.  The 
prevalence  of  small  firms  in  Spain  is  a  factor 
explaining  the  low  productivity  of  the  economy 
(European  Commission,  2016c  and  Huertas 
Arribas  and  Salas  Fumás  2017).  A  government 
report  discusses  regulatory  barriers  to  business 
growth (Ministry of Economy, 2017) and identifies 

successful  national-regional  coordination  are  the 
second  map  of  Unique  Scientific  and  Technical 
Infrastructures  and  cross-regional  initiatives  on 
public procurement for innovation. 

evaluation 

under-developed 

culture 
An 
hampers  policy 
improve  R&I 
learning  to 
support.  Quality,  impact  and  efficiency  of  public 
funding  are  not  systematically  assessed  with 
comparable  methodologies,  which  translates  into 
forgone  opportunities  to  improve  the  quality  and 
the  Spanish  R&I  system 
competitiveness  of 
al.,  2018).  Positive 
et 
(Fernández-Zubieta 
exceptions  are  some  science-business  cooperation 
schemes (such as CENIT or Torres Quevedo) and 
grants for excellent researchers (such as Ramón y 
Cajal).  The  evaluation  of  successful  programmes 
aligned  to  international  peer  review  standards, 
such  as  Severo  Ochoa  and  María  de  Maeztu,  or 
relevant schemes to reinforce human resources and 
science-business links such as the Industrial PhDs 
programme,  constitute  a  solid  basis  for  extending 
systematic 
to  other 
programmes. 

approaches 

evaluation 

to  83.6 %  of 

High  fast  broadband  connectivity  strengthens 
Spain's  readiness  for  the  digital  economy. 
Growth  in  coverage  is  particularly  strong  in 
networks that support access at 100 Mbps or more, 
available 
the  population.  The 
deployment  of  fibre  networks  (FTTP)  constitutes 
an  important  asset  of  the  Spanish  digital  society, 
covering 71.4 % of population. Yet this percentage 
is only 20.9 % in the more sparsely populated rural 
areas. 59 % of subscriptions offer speeds of at least 
30 Mbps  and  24 %  are  providing  100 Mbps  or 
more.  The  vigorous  implementation  of  policies  to 
take  up  of  high-speed  broadband 
improve 
connections  will  strengthen  the  position  of  Spain 
in the Digital Economy.  

in  business 
Spain  has  made  progress 
digitisation  but  does  not  yet  fully  exploit  its 
potential. The comparatively low digitisation level 
of Spanish SMEs, with 20 % of small firms selling 
firms 
online,  contrasts  with  38 % 
(European  Commission,  2018b),  and  appears  to 
constrain  their  potential  for  innovation  absorption 
and  growth.  A  new  digital  strategy  ("Estrategia 
Digital  para  una  España  Inteligente")  is  currently 
being  developed  by  the  Ministry  of  Energy, 
Tourism and Digital Agenda. 

for  big 

55 

 
4.4. Investment 

a  professional  association  may  hamper  the  free 
movement and efficient allocation of these services 
throughout  the  territory.  A  law  is  pending  since 
transitory 
2010,  as  mandated  by 
provision  of  Law  25/2009.  The  rationalisation  of 
membership  to  professional  bodies  is  one  of  the 
goals of the still-to-be-adopted reform. 

the  fourth 

is 

in 

services 

accommodation 

the  case 
sector.  The  Canary 

Restrictions  to  the  collaborative  economy  vary 
in 
across  regions.  This 
the 
accommodation 
Islands 
legislation 
required  prior  authorisation  and 
prohibited the renting out of "single rooms" within 
"holiday  dwellings/lettings".  This  legislation  was 
challenged  in  court,  and  the  ruling  declared  null 
and void provisions such as the interdiction to rent-
out a room only, the prohibition to offer short-term 
rental 
touristic 
zones/areas  and  the  obligation  of  registration. 
However, 
the  regulation  of  short-term  rental 
market in other regions (such as Valencia and the 
Balearic Islands) remains  restrictive, with  specific 
requirements  imposed  on  the  services  offered  by 
individuals  and  on  the  activities  of  collaborative 
authorisation 
economy 
requirements for transportation services restrict the 
business  of  collaborative  platforms  organising  the 
sharing of private transport (Frazzani et al., 2016). 
The  Spanish  competition  authority  challenged 
national  and  regional  regulations  on  transport  and 
accommodation  services  several  times  (the  last 
time  in  September  2017),  arguing  that  it  hinders 
and 
creating 
competition 
discriminatory barriers.  

platforms.  Regional 

unnecessary 

by 

three  areas  for  potential  policy 
intervention: 
removing  regulatory  thresholds,  improving  the 
business 
the 
implementation of the law of market unity. At the 
time of writing, no follow-up to this report is being 
given. 

environment, 

enhancing 

and 

Lowering  service  restrictions  would  increase 
productivity beyond the services sector (van der 
Marel  et  al.,  2016).  In  Spain,  the  value  added 
originating  from  the  services  sectors  which  is 
incorporated  in  manufacturing  accounts  for  33 % 
of  the  latter  sector's  value  added  (DG  Joint 
Research  Centre,  2017).  Tackling  restrictions  in 
the  services  sector  would  thus  increase  the  added 
value  and  productivity in  manufacturing. Namely, 
it  is  estimated  that  eliminating  regulatory  barriers 
in  services  would  increase  the  productivity  of 
several manufacturing industries in Spain by more 
than 10 % (Curnis and Manjón Antolín, 2017). 

Restrictions  in  retail  services  remain  high. 
Regulatory  restrictions  are  high  both  for  the 
establishment  and  operation  of  retail  outlets, 
labour  productivity  is  very  low  and  mark-ups  are 
relatively  high.  Previous 
reforms 
removed the requirement for retail outlets to have 
both  local  and  regional  licences  and  introduced 
the 
flexible  opening  hours.  However, 
more 
measures  to  simplify  establishment  are  not  fully 
implemented yet in all regions. 

legislative 

Restrictions  in  professional  services  exceed  the 
EU  levels  for  various  professions,  e.g.  civil 
engineers  and  architects  (European  Commission, 
2017j).  While  certain  regulated  professions  have 
modified their statutes, no progress has been made 
on  the  regulatory  reform  of  professional  services.  
In particular, regional disparities on membership to 

56 

 
 
 
4.4. Investment 

Box 4.4.9: Investment challenges and reforms in Spain 

1. Macroeconomic perspective 

After a sharp reduction during the crisis, led by the collapse of the construction sector in Spain, investment 
has rebounded strongly during the recovery, led by business investment, and is now slightly above the euro 
area average. Non-construction investment (10.5% of GDP in 2017) now represents a higher share of GDP 
than at its pre-crisis peak, led by the strength of equipment investment. Construction investment has been 
growing strongly since 2014 but from very low levels, and is still only at 60% of its 2008 pre-crisis peak. 
However, investment in intangibles remains below the euro area average, despite steady growth even during 
the crisis. Only public investment did not contribute to the overall rebound in investment, and has instead 
kept declining during the recovery. It now stands at 2.2% of GDP, less than half its pre-crisis peak level. 

2. Assessment of barriers to investment and ongoing reforms 

Whereas  the  macroeconomic  outlook  for  investment  is  broadly  favourable,  its  framework  conditions  in 
Spain  suffer  from  various  barriers.  Some  reforms  have  been  implemented  or  adopted,  notably  of  the 
insolvency framework (see Section 4.2.2) and of public procurement (see Section 4.4.4), but other barriers 
are still to be addressed. 

1. Skills mismatches in the form of both over- and under-skilling constrain labour productivity growth and 
work quality (see Sections 4.3.1, 4.3.2). The high share of temporary employment reduces both workers' and 
employers'  incentives  to  invest  in  training  and  improving  job-specific  skills.  Labour  market  relevance  of 
tertiary education in particular is weak, both because universities do not frequently consult the private sector 
and because SMEs have a limited capacity to take in interns and engage with the higher education system. 
Whereas secondary vocational educational training is being strengthened and promoted, enrolment rates are 
still  low.  In  the  tertiary  education  system,  public-private  programmes  such  as  the  Industrial  PhD  or  the 
Torres Quevedo scheme have not yet been replicated on a wider basis. 

2. Restrictive business regulations continue to discourage investment (see Section 4.4.4). While the actual 
impact of the constitutional court's ruling on some articles of the law on market unity remains to be seen, the 
2017 commitment of regions and the national government to push forward its implementation has produced 
few tangible results. Regulatory disparities thus still hamper cross-regional economic activity. There are no 
intentions to reform professional services during the current legislature, keeping mark-ups and entry barriers 
in  those  professions  high.  The  government  is  studying  how  to  mitigate  unnecessary  size-contingent 
regulations that prevent firms from growing, but no concrete proposals have been put forward yet.  

57 

Regulatory/ administrative burdenCSRTaxationPublic administrationAccess to financePublic procurement /PPPsCSRCooperation btw academia, research and businessCSRJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts CSRConstructionWages & wage settingDigital Economy / TelecomEducation CSREnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
4.5.  PUBLIC ADMINISTRATION 

A  new  law  on  public  sector  contracts  has  been 
adopted. The new law intends to address the need 
for  a  consistent  framework  ensuring  transparency 
and  effective  control  mechanisms.  It  also  aims  to 
strengthen  coordination  across  government  levels 
in the field of public procurement, as sub-national 
procurement  accounts  for  the  lion’s  share  of  the 
and  number  of  procurement 
total  value 
contracts (41). 

on 

council 

advisory 

The law sets up a new procurement governance 
structure.  The  Junta  Consultiva,  i.e.,  the  central 
public 
government’s 
procurement will host a Cooperation Committee of 
central,  regional  and  local  public  authorities  on 
procurement  matters.  This 
committee  will 
elaborate  a National  Public  Procurement  Strategy, 
which  is  intended  to  reflect  a  common  strategic 
vision for all administrative levels, with a view to 
improving 
combating 
corruption, 
economic 
professionalization, 
promoting 
efficiency,  enhancing 
the  use  of  electronic 
procurement  and  strategic  procurement,  and 
boosting the participation of SMEs.  

the creation of numerous Administrative Courts for 
Public Procurement at local level. 

justice.  The 

The  latest  data  show  modest  improvements  on 
the  efficiency  of 
length  of 
proceedings  in  first  instance civil and  commercial 
cases has been reduced according to the 2018 EU 
Scoreboard, but Spain remains in the lower third of 
Member  States  as  regards  the  length  of  those 
proceedings. It is also ranks low in terms of length 
of proceedings to solve cases in the specified fields 
of  EU  legislation  for  electronic  communications. 
On the positive side, the rate of resolving litigious 
civil  and  commercial  cases  has  for  the  first  time 
exceeded the rate of incoming cases, as it is above 
100%.  To  help 
the  court  system's 
efficiency,  54  Courts  of  First  Instance  have  been 
given exclusive competence in litigation related to 
the  general  conditions  of  financing  agreements 
with real estate guarantee rights when the borrower 
is  an  individual  person  and  additional  human  and 
material  resources  for  them  have  been  allocated. 
More  generally, 
to 
increase the number of posts in the justice system 
by 2019. 

the  government 

improve 

intends 

The  law  also  aims  to  enhance  ex-ante  and  ex-
post  controls on  contracting  authorities. A  new 
Independent Office for Regulation and Supervision 
will carry out investigations and issue instructions 
that  are  binding  for  contracting  authorities  of  the 
central  government.  However,  it  will  not  be 
competent  to  lodge  legal  actions,  annul  decisions 
or impose sanctions.   

The  effectiveness  of  the  measures  included  in 
the law will depend on the degree of ambition at 
the 
implementation  phase.  A  considerable 
amount of detail in defining the strategy, including 
the controls to be carried out, is left to the decision 
of the Cooperation Committee and the Independent 
Office  for  Regulation  and  Supervision.  At  the 
same  time,  the  way  the  new  governance  structure 
is  set  up  and  operates  is  crucial  for  delivering 
effective results. Moreover, the effectiveness of the 
current system of remedies could be hampered by 

(41)  According  to  the  Spanish  Public  Procurement  Registry 
shows  that  in  2016,  the  central  administration  accounted 
for 13.90% of the public contracts awarded and 29.87% of 
the  value  of  those  contracts,  regions  for  54.43%  of  the 
public contracts awarded and 47.41% of the their value and 
municipalities  for  23.59%  and  18.54%,  respectively 
(universities and social security mutual societies accounted 
for the remaining values). 

The  perceived  independence  of  the  judiciary 
has  improved  coming,  however,  from  a  rather 
low  level.  According  to  the  2018  EU  Justice 
Scoreboard,  during  the  past  year  the  perceived 
independence  of  the  judiciary  improved  both 
amongst companies and among the general public 
in  Spain.  It  still  remains  though  below  the  EU 
average,  as  confirmed  by  a  survey  among  judges 
carried  out  by  the  European  Network  of  Councils 
for 
to 
the  Judiciary  (ENCJ).  With  a  view 
addressing  this  concern,  the  General  Council  for 
the  Judiciary  endorsed  "principles  of  judicial 
ethics",  including  on  independence,  impartiality, 
integrity and transparency in December 2016. The 
Consultative  Council  of  European 
Judges 
expressed  concerns  on  the  appointment  regime  of 
the judges-members of the General Council for the 
Judiciary. The planned reform of the Organic Law 
on the Judiciary could address this issue. 

Spain  ranks  at  the  EU  average  on  quality  of 
justice. On some indicators, such as the IT use for 
case  management  and  arrangements  for  online 
publication  of  judgments,  Spain  is  above  the  EU 
average. The "Justicia Digital" project allowing the 
electronic  treatment  of  information  by  judicial 
offices enables  them  to  move  towards  zero  paper. 

58 

 
 
                                                           
4.5. Public administration 

The  2018  EU  Justice  Scoreboard  also  shows 
below-average  indicators  such  as  the  number  of 
judges  per  100 000  inhabitants  (which  could 
however increase given the announced increase in 
overall posts, see above).  

the  highest 

Citizens' and business perceptions of corruption 
have  improved  compared  to  2013,  but  remain 
among 
the  EU.  89 %  of 
in 
respondents  in  a  Eurobarometer  survey  think  that 
corruption  is  widespread  in  Spain  (EU  average 
72 %) (European Commission, 2017f). Corruption 
is  considered  a  problem  for  doing  business  by 
44 %  of  Spanish  business  representatives  (EU 
average 34 %). The proportions of Spanish citizens 
who believe that bribe-taking is widespread among 
politicians  and  political  parties  are  the  highest  in 
the  EU  (78 %  and  80 %  respectively  compared  to 
53 %  and  56 %  in  the  EU  average).  Whereas  the 
prosecution  of  corruption  cases  continues  at  a 
sustained  pace,  the  percentage  of  citizens  who 
believe  that  high-level  corruption  cases  are  not 
sufficiently  pursued  remains  one  of  the  highest  in 
the  EU  (81 %).  An  important  issue  in  Spain  has 
been  the  protracted  judicial  procedure  for  such 
cases. A revision of the Criminal Procedure law in 
2015 
to  criminal 
investigations  to  reduce  undue  procedural  delays. 
the 
The  Constitutional  Court 
constitutionality  of  these  new  time  limits  in  July 
2017.  So  far  the  new  rules  have  not  impeded 
investigations  by  the  Specialised  Service  for  the 
Prosecution  of  Corruption  and  Organised  Crime 
but it is too early to assess their impact on complex 
corruption cases. 

time  allocated 

confirmed 

limited 

the 

The  implementation  of  the  recently  adopted 
provisions  on  transparency  and  the  fight 
against  corruption  is  now  in  full  motion.  The 
Council  of  Transparency  noted  a  significant 
reduction  in  the  share  of  requests  for  information 
that are left unanswered by public institutions. The 
government announced implementing rules for the 
law  on  transparency  to  address  a  high  number  of 
exceptions 
to 
information.  The  Council  of  Transparency  is  also 
elaborating a methodology to evaluate compliance. 
The  implementation  of  the  law  on  political  party 
financing  shows  clear  signs  of  improvements  in 
financial  accountability  and  the  disclosure  of 
relevant  financial  information  by  political  parties. 
The  Court  of  Auditors  has  completed  several 
verifications  and  expects  to  produce  the  first 

refusal  of  access 

justify 

to 

to 

sanctions for non-compliance with the law in 2018. 
The Office of Conflicts of Interest is competent to 
investigate  alleged  incompatibilities  of  high-level 
revolving-doors 
related 
officials,  mainly 
practices.  While  the  Office  does  not  have  the 
power  to  apply  sanctions,  it  can  propose  them  to 
the  competent  authorities,  which  has  already 
resulted in eleven sanctioning procedures under the 
new law, with a clearance rate of 80 %. Currently 
there  are  no  plans  to  extend  the  law  to  other 
categories  of  public  officials.  Many  regions  have 
equivalent  systems  but 
formal 
cooperation  framework  between  them  and  the 
national Office. 

is  no 

there 

New  legislative  initiatives  to  improve  whistle-
blower  protection  and  to  regulate  lobbying  are 
currently  examined  by  the  Parliament.  While 
some  provisions  do  exist  to  protect  whistle-
blowers in Spain, they are scattered across various 
sectorial  and  regional  laws  and  do  not  ensure  full 
protection at the pre-trial investigation phase. One 
of  the  draft  initiatives  includes  a  lobby  register 
covering  public  administration  bodies,  while 
another  proposal  concerns  setting  up  a  dedicated 
register  for  the  Parliament.  Some  institutions  or 
regional authorities have set up their own lobbying 
registry. A good-practice example is the registry of 
the  National  Competition  Authority,  which 
publishes all meetings of board members, provides 
voluntary  integrity  questionnaires  for  businesses 
and  has  set  up  an  electronic  channel 
for 
anonymously  reporting  breaches  of  competition 
law. 

Improvements  in  institutional  quality  would 
amplify the gains from removing restrictions in 
services.  The  benefits  from  structural  reforms  are 
smaller  if  governance  is  poor  and  the  quality  of 
legislation  and  institutions  is  not  of  a  high 
standard.  Raising  governance  indicator  values  to 
the level of the best performing EU Member State 
would  multiply  productivity  gains  from  structural 
reforms  (Curnis  and  Manjón  Antolín,  2017).  This 
highlights  the  complementarity  of  regulatory  and 
institutional reforms in maximising their economic 
and social impact. 

59 

 
4.6. SECTORAL POLICIES 

4.6.1.  TRANSPORT 

Transport  and  energy  infrastructure  plays  an 
essential  role  in  ensuring  territorial  cohesion 
and economic development of Spain. Investment 
in physical infrastructure facilitates firms' business 
activities 
thereby 
and  workers'  mobility, 
contributing to productivity growth. The quality of 
is 
Spain's 
above  EU  average.  Efforts 
its 
efficiency  are  guided  by  the  "Infrastructures, 
Transport and Housing Plan" 2012-2024. 

infrastructure  endowment 
improve 
to 

transport 

Plans  to  open  the  rail  passenger  market  for 
competition before the prescribed deadline have 
not  been  pursued  in  2017.  Spain  has  decided  to 
wait  until  the  statutory  deadline  laid  down  in  the 
4th Railway Package. Work on the transposition of 
the  market  pillar  of  the  4th  Railway  Package  is 
underway:  a  draft  law  with  amendments  to  the 
current  railway  sector  legislative  framework  is  in 
public consultation and its adoption is expected in 
2018. The completion of Spain's rail core network 
by  2030  could  raise  concerns  if  the  pace  of 
implementation  is  not  stepped  up.  Nevertheless, 
progress has been made with the completion of the 
Atlantic 
the  Mediterranean  Corridors, 
supported by EUR 724 million of EU contributions 
from the Connecting Europe Facility. Cross-border 
rail traffic of freight trains from Spain into France 
and  Portugal  remains  a  bottleneck.  The  two 
different  gauges  (UIC  and  Iberian)  coexisting  in 
Spain,  and  the  difference  of  gauges  between 
Portugal  and  France,  constitute  a  key  barrier  for 
better  rail  connectivity,  although  new  sections 
using the internationally prevalent UIC gauge have 
been  completed  recently.  Increased  cooperation 
between  Spain,  France  and  Portugal  in  pursuing 
rail  interoperability  would  help  to  overcome  such 
obstacles.  

and 

As  regards  network  connectivity,  investment 
actions  aim  at  improving  the  land  connections 
of the state-owned port system in the short and 
medium  term.  The  Port  Accessibility  Investment 
Plan consists of a provision for the next five years 
of  EUR   1.418  million  of  public  investment.  This 
Plan  is  supported  by  a  Port  Land  Accessibility 
Financial Fund, an innovative financial tool which 
from  Port 
has  brought  additional 
Authorities  to  the  improvement  and  development 
of  port  rail  and  road  hinterland  connections.  It 

resources 

provides a EUR 559,7 million in funding partially 
under the EFSI program framework. 

The  implementation  of  rail  projects  supported 
by 
the  Connecting  Europe  Facility  and 
Structural  Funds  has  been  delayed.  Timelines 
for  several  projects  were  rescheduled.  While 
further  delays  could  affect  the  allocated  EU 
contribution,  cooperation  between  the  relevant 
national authorities and the European Commission 
is  ongoing  and  should  help  detect  shortcomings 
early and identify solutions to meet targets by end 
of the period.  

several 

insolvent 

treatment  of 

The 
toll 
motorways  is  still  to  be  solved.  The  Spanish 
the 
government  has  defined  a  solution  for 
insolvent  toll  motorways  and  a  roadmap  to  re-
tender them in 2018 is in progress. The State will 
take  over  their  operation  temporarily  through 
SEITTSA,  in  case  it  is  necessary,  until  the  tender 
is successfully completed. 

A  new  regulation  for  airport  charges  was 
adopted  in  January  2017  to  implement  the 
Airport  Charges  Directive.  The  new  Regulation 
aims  at  improving  efficiency  and  competitiveness 
in the management of Spanish airports by the listed 
state company Aena. It is based on regulatory best 
practices  and  should  create  a  more  predictable, 
stable  and  flexible  framework  based  on  a  5-year 
action  plan.  The  framework  incorporates  a  new 
tariff  model  with  more  incentives  for  efficient 
management of the airport infrastructure. 

Increasing  competition  in  port  services  can 
raise  ports'  efficiency  and  competitiveness. 
Maritime  transport  contributes  significantly  to  the 
Spanish  economy.  In  May  2017,  the  Spanish 
government  adopted  a  Royal  Decree  Law 
reforming  the  Spanish  port  labour  system  with  a 
view  to  complying  with  a  2014  judgement  by  the 
European  Court  of  Justice,  but  the  implementing 
law is still pending adoption. 

sets 
Spain's  National  Policy  Framework 
moderate  targets  for  low  emission  mobility.  It 
envisages  a  comparatively  low  share  of  0.5% 
electric vehicles on the road by 2020. Furthermore, 
for  publicly 
Spain  has  not  defined 
accessible 
for  2020.  The 
Framework however estimates a significant growth 
in vehicles running with natural or petroleum gas, 

recharging  points 

targets 

60 

 
 
4.6. Sectoral policies 

since  mid-2014,  which  sets  the  cost  of  producing 
electricity in a fair and transparent way (it directly 
takes  the  electricity  cost  from  the  wholesale 
market).  This  is  contributing  to  save  money  to 
consumers  in  their  electricity  bills  compared  to 
other types of contracts (as the NRA has stated in 
recent reports). The PVPC is increasing clarity and 
transparency of supply contracting processes since 
contract  alternatives  comparison  is  made  simpler 
to consumers. 

gas 

Projects 

Investment in energy infrastructure is expected 
to  peak  in  2019-20  and  then  continue  on  a 
sustained  level.  The  main  individual  projects  are 
two 
Interest 
commissioned  for  after  2020  ("STEP",  "Midcat" 
and  the  3rd  interconnection  between  Spain  and 
Portugal),  the  three  cross-border  interconnections 
mentioned 
three  hydro-pumped 
electricity storage facilities. 

of  Common 

above 

and 

With  a  renewable  energy  share  of  17.3  %  in 
2016,  Spain  is  on  track  towards  its  2020  target 
(43).  The  tenders  organised  in  2016  and  2017  for 
allocating support to renewable electricity projects 
are seen as a step forward in fostering sustainable 
investment  in  renewables  and  meeting  the  2020 
target.  They  are  expected  to  counteract  the  2014-
2015 slowdown in renewables' share growth. 

Between  2005  and  2016,  Spain  decreased  its 
primary  energy  consumption  by  13.8  %  to 
117.2 million tons of oil equivalent (Mtoe).  Over 
the  same  period,  final  energy  consumption  also 
decreased  by  18.1  %  to  82.5  Mtoe  in  2016. 
However,  the  2016  figures  show  an  increase  in 
both  primary  and  final  energy  consumption  as 
compared  to  2014  levels.  This  highlights  the 
importance  of  maintaining  the  commitment  to 
energy efficiency policies to ensure that targets are 
met  also  during  the  current  period  of  high 
economic growth. 

The  Spanish  government  expects  positive  side-
effects  on  employment  from  investment  in 
energy  efficiency.  The  employment  potential  of 
improving  energy  efficiency 
is 
estimated at about 55 jobs for every million euros 
of public investment (assuming a 300% multiplier 
for leveraging private investment). 

in  buildings 

establishes 

appropriate 

and 
refuelling 
infrastructure targets for these fuels. For maritime 
transport,  LNG  mobile  refuelling  is  available  for 
all maritime ports in the TEN-T Core Network and 
in  several  ports  of  the  Comprehensive  Network, 
and  additional  bunkering  terminals  and  ship-to-
ship refuelling are planned. The deployment of 20 
publicly  accessible  hydrogen  refuelling  points  by 
2020 is also planned. 

4.6.2.  ENERGY AND CLIMATE CHANGE 

Insufficient  connectivity  prevents  Spain  from 
fully  reaping  the  benefits  of  the  EU's  internal 
electricity  market.  In  2017,  Spain's  electricity 
interconnection  level  was  5.8  %,  well  below  the 
2020  target  of  10%;  impeding  for  example  the 
reduction  of  day-ahead  electricity  prices  that  are 
high  by  EU  comparison  (42)  and  the  optimization 
of  renewable  energy.  Low  connectivity  also 
prevents the rest of the European grid from tapping 
Spain's vast renewable energy sources. Despite the 
opening of additional cross-border power lines, the 
electricity  interconnection  capacity  with  France  is 
only 2.8 GW. New interconnections with Portugal 
will increase the interconnection capacity with this 
neighbouring  country  to  3.2  GW  by  the  end  of 
2020.  Three  projects  (across  the  Biscay  Bay  and 
the  Pyrenees)  committed  to  in  the  2015  Madrid 
declaration  should  significantly 
the 
interconnection  level  by  2026.  The  Biscay  Bay 
Project  is  planned  to  be  commissioned  by  2026 
and  its  completion  will  contribute  decisively  to 
better  plugging  the  Iberian  Peninsula  into  the 
internal electricity market. 

increase 

The  integration  of  gas  markets  on  the  Iberian 
Peninsula  is  advancing,  if  only  slowly.  The 
Iberian  Gas  Market  MIBGAS  is  intended  to 
eventually create one single market with Portugal. 
During 2016, its first full year of operation, market 
activity  expanded.  Although  MIBGAS's  liquidity 
is  below  that  of  the  main  European  gas  hubs, 
several  measures  implemented  since  then  have 
resulted in increasing MIBGAS’s liquidity. 

Transparency  and  clarity  for  consumers  as 
regards the cost of electricity is increasing. The 
Spanish  electricity  market  has  implemented  the 
‘Voluntary Price for the Small Consumer’ (PVPC) 

(42)  The  interconnection  level  is  the  ratio  between  import 

interconnection and net generation capacities. 

(43)  Source: Eurostat SHARES 

61 

 
                                                           
                                                           
4.6. Sectoral policies 

years.  Decoupling  economic  growth  from  water 
use remains a challenge in Spain, since sectors like 
agriculture, 
tourism,  and  energy  are  heavily 
dependent on water supply. 

in 

faces 

infrastructure 

The  current  water-pricing  policy  gives  few 
incentives  for  efficient  use,  and  the  supply  and 
investment 
wastewater 
gaps. Current pricing does not ensure the recovery 
of  the  cost  of  all  water  services,  and  prices  and 
transparent.  This 
subsidies  are  not  always 
encourages  water  waste,  especially 
the 
agriculture  sector,  the  largest  consumer  of  water. 
The problem is compounded by outdated irrigation 
systems  and  loose  control  of  water  abstraction. 
Moreover,  even 
is 
relatively  high  in  Spain,  its  potential  is  not  fully 
exploited.  Gaps  in  urban  wastewater  treatment 
suggest 
the  water 
infrastructure  (European  Commission,  2017h). 
are 
Furthermore, 
sometimes  disregarded,  although  flooding  is  a 
recurrent problem and prevention cheaper than the 
cost of flood recovery. 

flood-prevention  measures 

though  wastewater  reuse 

under-investment 

in 

improve  water 
Steps  are  being  taken  to 
governance.  To 
the  main  water 
address 
management  challenges  in  Spain  the  Ministry  for 
Agriculture,  Fisheries,  Food  and  Environment  has 
launched  a  process  in  2017  to  reach  a  "National 
Water Deal" (Pacto Nacional por el Agua), which 
is  now  under 
regional 
governments and stakeholders. 

consultation  with 

track 

is  on 

towards 

Spain 
its  EU2020 
CO2 emissions  targets.  Emissions  from  sectors 
not  covered  by  the  EU  Emission  Trading  System 
were  reduced  by  16.2%  between  2005  and  2015, 
which  is  above  Spain's  target of  -10%. According 
to  the  latest  national  projections  taking  into 
account  existing  measures,  the  2020  target  is 
expected  to  be  met  by  a  margin  of  9.1  pps.  The 
challenge is to keep emissions decoupled from the 
current strong economic growth. Work on the draft 
Law of Climate Change and Energy Transition has 
started in April 2017. 

4.6.3.  ENVIRONMENT 

Spain  still  faces  considerable  environmental 
in  water  and  waste 
challenges,  mainly 
management  as  well  as  air  quality.  Regarding 
governance,  the  potential  for  coordination  among 
the  different  competent  levels  of  government  is 
sustainable 
exploited, 
sometimes 
development  is  not  strongly  mainstreamed  into 
other policy areas (European Commission, 2017g). 
The  transition to  a  green,  circular  and  low-carbon 
the  potential  of  opening  up 
economy  holds 
significant  new  sources  of  employment  in  Spain 
(44). 

and 

not 

Circular  economy  issues are  starting  to  receive 
greater  policy  attention.    Spain  is  still  far  from 
the EU recycling target of 50% of municipal waste 
by  2020.  The  concept  of  circular  economy  is 
generally  embedded  in  national  and  regional 
policies 
efficiency, 
environmental innovations, clean technologies, and 
sustainable 
the 
government  has  started  to  prepare  a  national 
circular economy strategy in 2017. 

development. 

targeting 

addition, 

resource 

In 

that  water  demand  exceeds 

Certain  areas  in  Spain  are  water-stressed, 
meaning 
the 
available  water  resources  under  sustainable 
conditions.  Water  management  challenges  have 
increased  and  become  more  prominent  during  the 
severe drought Spain has been suffering in the last 

(44)  http://ec.europa.eu/environment/circular-

economy/index_en.htm 

62 

 
                                                           
 
 
 
 
 
 
 
4.6. Sectoral policies 

Box 4.6.1: Policy highlights 

The  availability  of  subnational  governments'  budget  execution  data  has  increased  considerably  in 
Spain. Since 2013, IGAE, the state general controller, publishes on a monthly basis, budget execution data 
in  national  accounts  terms for  all  17  regions and  for  the  total  state  sector.  It  also  publishes  on a  quarterly 
basis  budget  execution  data  in  national  accounts  terms for  the  local  government sector.  Since  April  2016, 
IGAE publishes on a monthly basis data to allow verification of compliance with the domestic expenditure 
rule  at  central  and  regional  government  levels,  and  every  quarter  for  the  central,  regional  and  local 
governments. 

Spain has the highest number among EU Member States of successful applicant projects financed in 
the first three years (2015-2017) of the highly competitive Horizon 2020 SME Instrument, which funds 
innovative  projects  of  SMEs  throughout  the  EU.  Firms  can  apply  for  support  in  two  different  phases:  for 
initial feasibility studies, and for supporting the implementation of the project. The success of Spanish firms 
has also been facilitated by the national support scheme "Horizon Pyme" within the programme "Business 
leadership in research and innovation". It finances the feasibility studies of SMEs that have reached a high 
score in their application to the first phase of the  SME Instrument, but still were not selected for funding. 
This enables them to submit an application for the second phase of the SME Instrument — or to find another 
funding  source  for  implementing  their  project.  Whereas  raising  the  innovation  capacity  of  Spanish  SMEs 
overall  remains  a  challenge,  this  example  shows  the  effectiveness  of  well-designed  support  measures  in 
boosting SME innovation capacity.  

63 

 
ANNEX A 

OVERVIEW TABLE 

Commitments  

2017 Country-specific recommendations (CSRs)  

CSR 1:  Ensure  compliance  with 
the  Council 
Decision of 8 August 2016, including also measures 
to  strengthen  the  fiscal  and  public  procurement 
comprehensive 
frameworks. 
expenditure  review  in  order  to  identify  possible 
areas for improving spending efficiency.  

Undertake 

a 

Summary assessment (45) 

Spain  has  made  Some  Progress  in  addressing 
CSR 1  

  Ensure compliance with the Council Decision of 

8 August 2016,  

  This overall assessment of compliance with CSR 
1  does  not 
include  an  assessment  of 
compliance with the Stability and Growth Pact.  

 

including  also  measures  to  strengthen  the 
fiscal  

  Limited  Progress.  While  the  government  has 
kept  implementing  measures  set  out  in  the 
domestic law to prevent and correct deviations 
from  fiscal  targets,  no  regulatory  measures 
have  been  taken  in  2017  to  increase  their 
automaticity 
the 
to 
contribution  of  the  Stability  Law's  spending 
rule to public finance sustainability. 

strengthen 

and 

  and public procurement frameworks.  

  Some  Progress.  A  new 

law  on  public 
procurement  was  adopted  and  will  enter  into 
force  on  9  March  2018.  It  provides  for  the 
establishment  of  a  consultative  body,  a 
committee to promote cooperation across the 

(45)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 
No progress: 
The  Member State  has  not  credibly announced  nor adopted  any  measures  to  address  the CSR.  This  category  covers  a  number  of 
typical  situations,  to  be  interpreted  on  a  case-by-case  basis  taking  into  account  country-specific  conditions.  They include  the 
following: 
no legal, administrative, or budgetary measures have been announced  
in the national reform programme, 
in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission,  
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative body;   
the Member State has taken initial steps in addressing the CSR, such as commissioning a study or setting up a study group to 
analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has 
not proposed any clearly-specified measure(s) to address the CSR. 

• 
• 
• 
• 
• 
• 

Limited progress: 
The Member State has: 
• 
• 

announced certain measures but these only address the CSR to a limited extent;and/or 
presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 
further work is needed before the CSR will be implemented; 
presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 

• 
Some progress: 
The Member State has adopted measures  
that partly address the CSR and/or  
• 
the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the CSR 
• 
as  only  a  few  of  the  adopted  measures  have  been  implemented.  For  instance:  adopted  by  national  parliament;  by  ministerial 
decision; but no implementing decisions are in place.  

Substantial progress: 
The Member State has adopted measures that go a long way in addressing the CSR and most of which have been implemented. 
Full implementation:  
The Member State has implemented all measures needed to address the CSR appropriately. 

64 

 
 
                                                           
B. MIP Scoreboard 

various  tiers  of  government,  and  a  new 
supervisory  authority.  For  the  first  time,  it 
stipulates the obligation to adopt, within eight 
months  following  the  entry  into  force  of  the 
law,  a  nation-wide  public  procurement 
strategy.  Much  of  the  success  of  the  new  law 
will depend on the ambition of decisions taken 
at the time of implementation.  

  Some  Progress.  A  review  of  central  and 
regional  government  expenditure  has  been 
launched  in  2017  to  identify  areas  where 
spending  allocation  can  be  made  more 
efficient.  The  first  phase  of  the  review  is 
planned to be completed by end-2018.  

Spain  has  made  Limited  Progress  in  addressing 
CSR 2  

  Some  Progress.  Some 

However, 

towards  better 

regions  advanced 
moderately 
coordination 
between  public  employment  and 
social 
with 
cooperation 
services. 
employers still presents important deficiencies. 
The  Network  for  Social  Inclusion  has  the 
potential  to  effectively  enhance  coordination 
between  employment  and  social  services  at 
the national and regional level. The roll-out of 
the  Universal  Social  Card  starting  in  2018 
should  also 
facilitate  closer  coordination. 
Overall  the  scope  of  measures  is  limited  and 
their  effect  can  only  be  assessed  once 
implementation has begun.  

  Undertake  a 

comprehensive  expenditure 
review  in  order  to  identify  possible  areas  for 
improving spending efficiency.  

CSR 2:  Reinforce 
the  coordination  between 
regional  employment  services,  social  services  and 
employers,  to  better  respond  to  jobseekers’  and 
employers’  needs.  Take  measures  to  promote 
hiring  on  open-ended  contracts.  Address  regional 
disparities and fragmentation in income guarantee 
schemes  and  improve  family  support,  including 
access  to  quality  childcare.  Increase  the  labour 
market  relevance  of  tertiary  education.  Address 
regional  disparities  in  educational  outcomes,  in 
particular  by  strengthening  teacher  training  and 
support for individual students.  

  Reinforce  the  coordination  between  regional 
employment  services,  social  services  and 
employers,  to  better  respond  to  jobseekers’ 
and employers’ needs.  

  Take  measures  to  promote  hiring  on  open-

ended contracts.  

  Limited  Progress.  While  Spain  became  more 
successful  in  fighting  the  abuse  of  temporary 
contracts,  most  efforts  to  promote  hiring  on 
open-ended  contracts  have  shown 
limited 
effectiveness  so  far  or  have  not  yet  moved  to 
implementation stage.  

65 

 
B. MIP Scoreboard 

  Address regional disparities and fragmentation 
in  income  guarantee  schemes  and  improve 
family  support, 
including  access  to  quality 
childcare.  

 

Increase  the 
tertiary education.  

labour  market  relevance  of 

  Limited  Progress.  While  fragmentation  has 
been  mitigated  to  some  extent, 
initiatives 
intended  to  address  limited  effectiveness  in 
income  guarantee  schemes  are 
national 
progressing very slowly.  

  Limited Progress. Measures to increase labour 
market  relevance  of  tertiary  education  are  so 
far  largely  limited  to  provision  of  information 
and advice, or too recent to measure effects on 
graduate cohorts.  

  Address  regional  disparities 

in  educational 
outcomes, 
in  particular  by  strengthening 
teacher  training  and  support  for  individual 
students.  

CSR 3: Ensure adequate and sustained investment 
in  research  and  innovation  and  strengthen  its 
governance  across  government  levels.  Ensure  a 
thorough and timely implementation of the law on 
market  unity 
forthcoming 
for  existing  and 
legislation.  

  Ensure  adequate  and  sustained  investment  in 
research  and  innovation  and  strengthen  its 
governance across government levels.  

school 

  Limited Progress. Regional disparities persist in 
early 
student 
performance,  although  some  improvements 
have been made to close the gap between best 
and worst performing regions.  

rates  and 

leaving 

Spain  has  made  Limited  Progress  in  addressing 
CSR 3  

is  being 

increased,  but 

Involvement  and 

  Limited Progress. Public funding for innovation 
in  SMEs  somewhat 
fiscal 
measures put in place during the crisis appear 
to limit the adequate execution of R&I budget 
lines.  Administrative  procedures  are  being 
modified  to  encourage  uptake  of  support 
measures. 
interaction  of 
relevant  actors  in  the  design  of  innovation 
policy 
intensified.  Examples  of 
initiatives  include  the  work  to  increase  the 
efficiency  of  "Unique  Scientific  and  Technical 
through  a  second 
Infrastructures" 
mapping, and increased support for the R+D+I 
Public  Policy  Network  (REDIDI),  which  has  the 
national-regional 
potential 
improve 
Systematic 
coordination  of  R&I  policy. 
programme evaluations, however, have not yet 
become  the  rule  despite  some  good  practice 
examples.  

(ICTS) 

to 

  Ensure  a  thorough  and  timely  implementation 
of  the  law  on  market  unity  for  existing  and 
forthcoming legislation.  

  Limited  Progress.  Supporting  guidelines  for 
implementing  the  law  on  market  unity  have 
been  issued,  but  the  renewed  commitment  of 
regions and the central government to mutual 
cooperation  on  market  unity  and  better 
regulation  in  Spain  has  so  far  not  translated 

66 

 
B. MIP Scoreboard 

into  tangible  results.  The  Constitutional  Court 
rulings on the Law on Market Unity might limit 
effective  progress  in  this  area  for  the  time 
given 
being.  National 
reassurances that it will be possible to achieve 
the  objectives  of  the  law  using  the  provisions 
unaffected by the rulings.  

authorities  have 

Europe 2020 (national targets and progress) 

Employment rate target set in the NRP: 74 %.  

66.2  % 
improvement. 

in  Q3-2017.  Far  from  target  despite 

R&D target set in the NRP: 2 % of GDP  

1.19 % of GDP (2016). Far from target. 

Greenhouse  gas  emissions,  national  target:  -10  % 
in 2020 compared to 2005 (in non-ETS sectors) 

- 17.2 % (2016) 

2020 renewable energy target: 20 %  

Energy  efficiency,  2020  energy  consumption 
targets:  

  122.6 Mtoe (primary energy consumption);  

  87.23 Mtoe (final energy consumption).  

Early school leaving (ESL) target: 15 %.  

According to the national projections submitted to 
the Commission it is expected that the target will 
be achieved. 

With  a  renewable  energy  share  of  17.3  %  (2016), 
Spain is on track to reach the 2020 target 

  Primary energy consumption: 117.2 Mtoe 

  Final energy consumption: 82.5 Mtoe      

Spain  should  keep  its  commitment  to  the  energy 
efficiency  policies  in  order  to  make  sure  that 
demand  remains  below  both  targets  during  the 
next years, when a GDP growth rate is expected. 

18.3  % 
improvement. 

(2017) 

Far 

from 

target  despite 

Tertiary education target: 44 %.  

41.2 % (2017). Close to target. 

Target  on  the  reduction  of  population  at  risk  of 
poverty  or  social  exclusion  compared  to  2008  in 
thousands of persons: -1 400  

The  number  of  people  at  risk  of  poverty  or  social 
decreased in 2015 and 2016. With 2 040 thousand 
people at risk of poverty or social exclusion more 
than  in  2008,  however,  the  EU2020  target  is  far 
from reach.  

67 

 
 
 
 
 
B. MIP Scoreboard 

ANNEX B   

MACROECONOMIC IMBALANCE PROCEDURE SCOREBOARD 

Table B.1: 

The Macroeconomic Imbalance Procedure  scoreboard for Spain ( AMR 2018) 

Flags: p:Provisional.           
1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. 
Please note that figures reported in this table may therefore differ from more recent data elsewhere in this document. 
2) Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism 
Report.  
Source: European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661. 

68 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%-3.8 -2.4 -0.6 0.8 1.2 1.4 Net international investment position% of GDP-35%-91.9 -89.9 -95.2 -97.8 -89.7 -83.9 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)-2.5 -5.3 -0.3 -1.0 -3.1 -4.3 Export market share - % of world exports5 year % change-6%-8.4 -17.9 -10.8 -11.9 -3.8 2.2 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)-1.0 -5.1 -4.1 -3.4 0.5p0.4pHouse price index (2015=100), deflated 1 year % change6%-9.8 -16.8 -10.0 0.1 3.7 4.7 Private sector credit flow, consolidated% of GDP14%-3.7 -11.2 -10.3 -7.0 -1.8p-1.0pPrivate sector debt, consolidated% of GDP133%196.2 187.8 176.9 165.5 154.6p146.7pGeneral government gross debt% of GDP60%69.5 85.7 95.5 100.4 99.4 99.0 Unemployment rate3 year average10%19.7 22.0 24.1 25.1 24.2 22.1 Total financial sector liabilities, non-consolidated1 year % change16.5%3.0 2.9 -10.9 -0.4 -1.3 0.9 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp1.2 1.2 0.8 0.3 0.0 -0.1 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp6.9 6.7 5.7 4.0 0.4 -3.5 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp21.7 15.2 14.0 7.0 -4.6 -11.1 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
ANNEX C 

STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2017. . Includes not only banks but all monetary financial institutions excluding central banks 
(2) Latest data Q2 2017. 
(3) As per ECB definition of gross non-performing debt instruments 
(4) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

69 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)344.4307.3286.5261.9243.9232.8Share of assets of the five largest banks (% of total assets)51.454.458.360.261.8-Foreign ownership of banking system (% of total assets)(2)7.46.26.55.33.94.3Financial soundness indicators:2)              - non-performing loans (% of total loans)(3)6.47.96.75.34.84.5              - capital adequacy ratio (%)11.513.313.614.514.714.4              - return on equity (%)(4)-24.95.86.76.65.04.1Bank loans to the private sector (year-on-year % change)(1)-7.4-8.6-4.8-2.3-1.6-0.1Lending for house purchase (year-on-year % change)(1)-3.3-4.1-3.7-4.2-2.8-2.4Loan to deposit ratio(1)108.198.793.391.488.387.9Central Bank liquidity as % of liabilities--6.26.16.98.0Private debt (% of GDP)187.8176.9165.5154.6146.7-Gross external debt (% of GDP)(2) - public24.341.248.550.949.448.3    - private40.652.452.848.646.545.3Long-term interest rate spread versus Bund (basis points)*435.1299.2156.0124.0130.3124.7Credit default swap spreads for sovereign securities (5-year)*325.7185.571.472.668.137.8 
 
 
 
 
  
  
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(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 (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap. 
Source: Eurostat. 

70 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)24.723.621.920.019.0:Gender employment gap (pps)10.09.610.211.211.511.8Income inequality, measured as quintile share ratio (S80/S20)6.56.36.86.96.6:At-risk-of-poverty or social exclusion rate1 (AROPE)27.227.329.228.627.9:Young people neither in employment nor in education and training (% of population aged 15-24)18.618.617.115.614.6:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)59.658.659.962.063.965.5Unemployment rate2 (15-74 years)24.826.124.522.119.617.2Gross disposable income of households in real terms per capita3 (Index 2008=100) ::90.392.594.3:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction428.532.028.626.624.4:Children aged less than 3 years in formal childcare36.035.036.939.739.3:Self-reported unmet need for medical care0.70.80.60.60.5:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::54.053.055.0 
 
 
 
  
  
  
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science.       
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 
Source: Eurostat, OECD. 

71 

Labour market indicators201220132014201520162017 5Activity rate (15-64)74.374.374.274.374.2:Employment in current job by durationFrom 0 to 11 months13.914.115.616.516.9:From 12 to 23 months7.26.76.87.48.3:From 24 to 59 months14.913.413.312.312.1:60 months or over64.065.864.363.862.6:Employment growth* (% change from previous year)-4.0-2.61.02.72.52.6Employment rate of women(% of female population aged 20-64)54.653.854.856.458.159.7Employment rate of men (% of male population aged 20-64)64.663.465.067.669.671.5Employment rate of older workers* (% of population aged 55-64)43.943.244.346.949.150.5Part-time employment* (% of total employment, aged 15-64)14.415.715.815.615.115.0Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)23.423.224.025.226.126.8Transition rate from temporary to permanent employment(3-year average)13.713.213.612.2::Long-term unemployment rate1 (% of labour force)11.013.012.911.49.57.9Youth unemployment rate (% active population aged 15-24)52.955.553.248.344.438.6Gender gap in part-time employment17.517.517.817.316.517.0Gender pay gap2 (in undadjusted form)18.717.814.914.9::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)11.211.410.19.99.4:Underachievement in education323.6::22.2::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)41.542.342.340.940.1:Variation in performance explained by students' socio-economic status415.8::13.4:: 
 
 
 
  
  
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD. 

72 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.66.56.56.6::Disability1.81.91.81.7::Old age and survivors11.412.012.312.0::Family/children1.31.41.31.3::Unemployment3.43.32.72.2::Housing0.10.10.10.1::Social exclusion n.e.c.0.20.20.20.2::Total25.025.324.924.2::of which: means-tested benefits3.73.73.53.2::General government expenditure by function (% of GDP, COFOG)Social protection17.618.017.717.1::Health6.26.26.16.2::Education4.24.14.14.1::Out-of-pocket expenditure on healthcare (% of total health expenditure)22.823.924.624.2::Children at risk of poverty or social exclusion (% of people aged 0-17)*32.432.635.834.432.9:At-risk-of-poverty  rate1 (% of total population)20.820.422.222.122.3:In-work at-risk-of-poverty rate (% of persons employed)10.810.512.513.113.1:Severe material deprivation rate2  (% of total population)5.86.27.16.45.8:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan1.01.00.91.00.7:Tenant, rent at market price3.53.83.33.03.1:Proportion of people living in low work intensity households4 (% of people aged 0-59)14.315.717.115.414.9:Poverty thresholds, expressed in national currency at constant prices*74077050681368697084:Healthy life years (at the age of 65)Females9.09.09.48.9::Males9.29.710.19.5::Aggregate replacement ratio for pensions5 (at the age of 65)0.60.60.60.70.7:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::44.553.254.159.5GINI coefficient before taxes and transfers*50.851.552.752.952.8:GINI coefficient after taxes and transfers*34.233.734.734.634.5: 
 
 
 
 
  
  
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
(2) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if 
received most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the 
application is still pending or don't know.       
(3) Percentage population aged 15-64 having completed tertiary education.       
(4) Percentage population aged 20-24 having attained at least upper secondary education.       
(5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
(6) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).  
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

73 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry5.502.782.290.492.532.490.32Labour productivity in Construction-1.052.2012.302.18-0.21-5.430.53Labour productivity in Market Services1.761.521.701.220.730.111.07Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry-4.11-1.63-0.240.72-2.44-1.49-0.50ULC in Construction1.03-4.12-12.38-4.09-0.493.71-1.79ULC in Market Services-0.900.23-2.07-1.17-0.103.18-0.33Business Environment2010201120122013201420152016Time needed to enforce contracts(1) (days)515.0515.0510.0510.0510.0510.0510.0Time needed to start a business(1) (days)52.029.030.024.014.014.013.0Outcome of applications by SMEs for bank loans(2)0.990.941.150.980.970.660.56Research and innovation2010201120122013201420152016R&D intensity1.351.331.291.271.241.221.19General government expenditure on education as % of GDP4.504.404.204.104.104.10naPersons with tertiary education and/or employed in science and technology as % of total employment41424344454545Population having completed tertiary education(3)28293031323233Young people with upper secondary level education(4)62626364666971Trade balance of high technology products as % of GDP-1.24-1.05-0.86-0.70-0.87-1.06naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overall1.791.591.44OECD PMR5, retail3.673.482.88OECD PMR5, professional services2.922.742.43OECD PMR5, network industries(6)2.271.651.59 
 
 
 
  
  
  
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 material 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    
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP  
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change)  
Real unit energy cost: real energy costs as % of total value added for the economy  
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)   
Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors  
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP  
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT.  
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste  
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP  
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions  
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.  
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2010 EUR)  
Transport carbon intensity: GHG 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. consumption of 
international bunker fuels  
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.  
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels  
* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

74 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.120.120.120.110.110.11Carbon intensity kg / €0.330.340.320.310.31-Resource intensity (reciprocal of resource productivity)kg / €0.490.400.380.380.360.35Waste intensity kg / €-0.11-0.11--Energy balance of trade % GDP-3.7-3.7-3.4-2.9-2.0-1.5Weighting of energy in HICP%10.7811.6012.3912.3012.3811.65Difference between energy price change and inflation %12.77.4-1.92.6-4.5-10.2Real unit of energy cost% of value added13.414.514.915.0--Ratio of environmental taxes to labour taxesratio0.090.090.110.110.12-Environmental taxes% GDP1.61.61.91.91.91.9Sectoral Industry energy intensity kgoe / € 0.130.130.130.130.110.11Real unit energy cost for manufacturing industry excl. refining% of value added20.821.120.720.8--Share of energy-intensive industries in the economy% GDP8.738.598.278.588.92-Electricity prices for medium-sized industrial users€ / kWh0.110.120.120.120.120.11Gas prices for medium-sized industrial users€ / kWh0.030.040.040.040.030.03Public R&D for energy % GDP0.030.010.010.010.010.01Public R&D for environmental protection% GDP0.030.020.020.020.020.02Municipal waste recycling rate%26.729.832.530.830.029.7Share of GHG emissions covered by ETS*%39.540.837.838.340.539.0Transport energy intensitykgoe / €0.820.770.780.750.760.75Transport carbon intensitykg / €1.941.851.951.881.88-Security of energy supplyEnergy import dependency%76.373.170.472.973.371.9Aggregated supplier concentration indexHHI14.114.919.825.220.5-Diversification of energy mixHHI0.290.270.270.270.270.28 
 
 
 
REFERENCES 

Adalet  McGowan,  M.,  D.  Andrews  and  V.  Millot  (2017),  'The  walking  dead?  Zombie  firms  and 
productivity  performance  in  OECD  countries',  OECD  Economics  Department  Working  Paper  1372, 
January 2017, OECD, Paris. 

Archondo,  I.,  García,  J.  R.,  Ulloa,  C.  (2017). Repercusiones  del  aumento  del  salario  mínimo  en 
España. BBVA Research.  Available  at :  https://www.bbvaresearch.com/publicaciones/repercusiones-del-
aumento-del-salario-minimo-en-espana/ 

Banco  de  España  (2017a). Boletín  Económico  1/2017.  Informe  Trimestral  de 
la  Economía 
Española, available at: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRev
istas/BoletinEconomico/Informe%20trimestral/Fich/be1701-it.pdf 

la  Economía 
Banco  de  España  (2017b). Boletín  Económico  2/2017.  Informe  Trimestral  de 
Española, available at: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRev
istas/BoletinEconomico/descargar/17/T2/Fich/be1702-it.pdf 

la  Economía 
Banco  de  España  (2017c). Boletín  Económico  3/2017.  Informe  Trimestral  de 
Española, available at: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRev
istas/BoletinEconomico/descargar/17/T3/Fich/be1703-it.pdf  

Banco 
Available at: https://www.bde.es/bde/es/secciones/informes/Publicaciones_an/Informe_anual 

(2017d). Annual 

España 

Report 

2016, 

Bank 

de 

of 

Spain,  Madrid. 

Bricongne, J.-C., L. Coutinho and N. Philiponnet (2018), 'Deleveraging needs in the EU: methodology to 
benchmark  private  debt',  European  Economy  Technical  Paper,  forthcoming,  Publications  Office  of  the 
European Union, Luxembourg. 

CaixaBank Research (2017). Tecnología  y  empleo  de  calidad:  ¿una  relación  cambiante? Informe 
mensual. Available  at: http://www.caixabankresearch.com/tecnologia-y-empleo-de-calidad-una-relacion-
cambiante  

Canton, E., D. Ciriaci and I. Solera (2014), 'The economic impact of professional services liberalisation', 
European Economy Economic Paper 533, September 2014, Publications Office of the European Union, 
Luxembourg. 

Castelló-Climent,  A  and  Doménech,  R  (2014)  Human  Capital  and  Income  Inequality:  Some  Facts  and 
Some 
at: 
Papers. 
https://www.bbvaresearch.com/KETD/fbin/mult/WP_1228_tcm348-430101.pdf 

Available 

Working 

Puzzles, 

BBVA 

12/28 

Christodoulopoulou,  S.  and  O.  Tkačevs  (2014),  'Measuring  the  effectiveness  of  cost  and  price 
competitiveness in external rebalancing of euro area countries. What do alternative HCIs tell us?',  ECB 
Working Paper 1736, September 2014, European Central Bank, Frankfurt am Main. 

Consejo  Económico  y  Social  España  (2017).  Políticas  Públicas  para  combatir  la  pobreza  en  España. 
Informe 01/2017. Available at : http://www.ces.es/documents/10180/4509980/Inf0117.pdf 

Cuadrado,  P.,  Moral-Benito,  E.  (2016). El  crecimiento  potencial  de  la  economía  española.  Documentos 
Ocasionales 
at: 
https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasional
es/16/Fich/do1603.pdf 

Available 

España. 

Banco 

1603. 

de 

nº 

75 

 
 
References 

DG  Economic  and  Financial  Affairs  (2017),  'Post-programme  surveillance  report  Spain,  autumn  2017', 
European Economy Institutional Paper 66, December 2017, Publications Office of the European Union, 
Luxembourg. 

DG  Economic  and  Financial  Affairs  (2018),  'The  2018  ageing  report.  Underlying  assumptions  and 
projection  methodologies',  European  Economy  Institutional  Paper,  forthcoming,  Publications  Office  of 
the European Union, Luxembourg. 

DG  Joint  Research  Centre  (2017),  'The  Role  of  the  EU  in  Global  ManufacturingValue  Chains', 
Publications Office of the European Union, Luxembourg.  

Doménech R., García, J. R., Ulloa, C. (2016). Los efectos de la flexibilidad salarial sobre el crecimiento y 
el  empleo. Documento  de  Trabajo  nº  16/05.  BBVA Research.  Marzo  2016. Available  at: 
https://www.bbvaresearch.com/publicaciones/los-efectos-de-la-flexibilidad-salarial-sobre-el-crecimiento-
y-el-empleo/. 

EMIN Context Report, Developments in relation to minimum income schemes in Europe, October 2017. 
https://eminnetwork.files.wordpress.com/2017/10/emin2-eu-context-report-2017-
Available 
at: 
final.pdfGobierno 
at: 
de 
https://www.msssi.gob.es/estadEstudios/estadisticas/BarometroSanitario/Barom_Sanit_2016/RESUMEN
GRAFICO_BS2016.pdf 

Barómetro 

Available 

Sanitario 

España. 

2016. 

Estrategia 
2020, available at: https://www.sepe.es/contenidos/comunicacion/noticias/estrategia-activacion-empleo-
2017-2020-190917.html 

Activación 

Empleo 

para 

de 

el 

2017-

Eurofound  (2016),  Recent  developments  in  temporary  employment:  Employment  growth,  wages  and 
transitions. Available at: https://www.eurofound.europa.eu/publications/executive-summary/2016/labour-
market/recent-developments-in-temporary-employment-employment-growth-wages-and-transitions-
executive  

European Commission (2016). Country Report Spain 2016, SWD(2016) 78 final, February 2016. 

European 
https://ec.europa.eu/growth/smes/business-friendly-environment/performance-review-2016_en 

Performance 

Commission 

(2016b), 

Review, 

SME 

available 

at 

European Commission (2016 c) Report on Single Market integration and competitiveness in the EU and 
its Member States, of 24 November 2016 available at https://ec.europa.eu/growth/content/report-single-
market-integration-and-competitiveness-eu-and-its-member-states-0_en 

European  Commission  (2017a). Labour  Market  and  Wage  Developments  in  Europe. Annual  Review 
2017. ISSN: 2443-6771. 

European  Commission  (2017b).  COM(2017)  674  final.  Draft  Joint  Employment  Report.  From  the 
Commission  and  the  Council  accompanying  the  Communication  from  the  Commission  on  the  Annual 
Growth Survey 2018. Brussels, 22.11.2017 

European Commission (2017c). Indicator framework for monitoring the Council recommendation on the 
integration 
at: 
long-term 
http://ec.europa.eu/social/BlobServlet?docId=16934&langId=en 

labour  market.  Available 

unemployed 

into 

the 

the 

of 

European Commission (2017d). Country Report Spain 2017, SWD(2017) 74 final, February 2017. 

76 

 
 
 
References 

European Commission (2017e), 'Benchmarks for the assessment of private debt', Note for the Economic 
Policy Committee (not publicly available). 

European Commission (2017f), 'Special Eurobarometer 470 - Corruption', December 2017, Publications 
Office 
Luxembourg 
(http://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/ResultDoc/download/DocumentKy/81007) 

European 

Union, 

the 

of 

European Commission (2017g), Environmental implementation review Spain 2017, Publications Office of 
the European Union, Luxembourg. 

European  Commission 
(http://ec.europa.eu/environment/water/water-urbanwaste/implementation/factsfigures_en.htm). 

'Facts  and  Figures  about  Urban  Waste  Water  Treatment' 

(2017h), 

European Commission (2017i), Alert Mechanism Report 2018, COM(2017) 771 final, November 2017. 
https://ec.europa.eu/info/publications/2018-european-semester-alert-mechanism-report_en 

European Commission (2017 j), Communication on reform recommendations for regulation in 
professional services, COM(2016) 820 final and  Staff Working Document accompanying the 
Communication (SWD(2016) 436) of 10 January 2017 at 
http://ec.europa.eu/DocsRoom/documents/20505 

European Commission (2018), ‘Debt Sustainability Monitor 2017’ Directorate-General for Economic and 
Financial Affairs, European Economy, Institutional Paper 071/2018. 

European Commission (2018b), Digital Scoreboard 2018, Brussels: European Commission 

European  Network  of  Councils  for  the  Judiciary  (2018),  ENCJ  project  on  Independence  and 
Accountability  (https://www.encj.eu/index.php?option=com_content&view=article&id=178:ind-and-acc-
&catid=34&Itemid=252). 

Felgueroso,  F.,  J.  I.  García  Pérez,  S. Jimenez-Martin  y  B. Anghel (2017). Perfilado  de  parados:  una 
propuesta  de  herramienta  para  los  servicios  públicos  de  empleo. Fedea Policy Papers no.  2017-10. 
Madrid. Available at: http://documentos.fedea.net/pubs/fpp/2017/04/FPP2017-10.pdf  

Fernandez Kranz, D. (2017). Ingresos salariales en Espana durante la crisis economica: ha sido efectiva la 
reforma de 2012? Cuadernos de Informacion Economica. Num. 246. Mayo/Junio. 

Fernández-Zubieta, A., I. Ramos-Vielba, I. and T. Zacharewicz (2018), RIO Country Report: Spain 2017, 
forthcoming, Publications Office of the European Union, Luxembourg. 

Frazzani, S., G. Grea and A. Zamboni (2016), 'Study on passenger transport by taxi, hire care with driver 
2016 
EU. 
and 
(https://ec.europa.eu/transport/sites/transport/files/2016-09-26-pax-transport-taxi-hirecar-w-driver-
ridesharing-final-report.pdf). 

ridesharing 

September 

report', 

Final 

the 

in 

Fuente,  A.,  M.  A.  García  Díaz  and  A.  R.  Sánchez  (2017),  'La  salud  financiera  del  sistema  público  de 
pensiones  español.  Análisis  retrospectivo,  proyecciones  de  largo  plazo  y  factores  de  riesgo',  Estudios 
sobre la economía española 2017/04, Fedea, Madrid. 

Gobierno  de  España,  CCOO,  UGT,  CEOE  y  CEPYME  (2014). Acuerdo  de  propuestas  para  la 
negociación 
empleo. Available 
at: http://www.ugt.es/Documentos%20de%20apoyo/Acuerdo_Propuestas_negociacion_tripartita_fortalec
er_crecimiento_economico_y_empleo_29072014.pdf 

tripartita  para 

económico  y 

crecimiento 

fortalecer 

el 

el 

77 

 
 
 
 
References 

García  Pérez,  J.  I.  (2017). Una  primera  evaluación  del  impacto  sobre  la  salida  del  desempleo  de  las 
políticas  activas  ofrecidas  por  los  servicios  públicos  de  empleo  en  España.  Fedea  Policy  Papers  no. 
2017/07, Madrid. 

García Pérez, J. I., & Jansen, M. (2015). Reforma laboral de 2012: Qué sabemos sobre sus efectos y qué 
queda por hacer? (No. 2015-04). FEDEA.  

García Pérez, J. I., Mestres Domènech, J. (2016). The Impact of the 2012 Spanish Labour Market Reform 
on  Unemployment  Inflows  and  Outflows:  a  Regression  Discontinuity  Analysis  using  Duration 
Models. Fedea Policy Papers no. 2016/27. 

General  Council  of 
judicial  ethics',  December  2016 
(http://www.poderjudicial.es/stfls/CGPJ/TRANSPARENCIA/FICHEROS/20161221%20Principios%20E
tica%20Judicial_TEXTO%20FINAL_ES-EN_REV.pdf). 

'Principles  of 

the  Judiciary 

(2016), 

Gobierno  de  España,  CCOO,  UGT,  CEOE  y  CEPYME  (2014). Acuerdo  de  propuestas  para  la 
fortalecer  el  crecimiento  económico  y  el  empleo,  available 
negociación 
at: http://www.ugt.es/SitePages/NoticiaDetalle.aspx?idElemento=503  

tripartita  para 

Haugh, D., M. Adalet McGowan, D. Andrews, A. Caldera Sánchez, G. Fulop and P. García Perea (2017), 
'Fostering innovative business investment in Spain', OECD Economics Department Working Paper 1387, 
OECD, Paris. 

Hernández de Cos, P., J. Francisco Jimeno and R. Ramos (2017), 'The Spanish Public Pension System: 
Current Situation, Challenges and Reform Alternatives', Occasional Paper 1701, Bank of Spain, Madrid. 

Huertas Arribas, E. and Salas Fumás V. (2017) Tamaño y productividad de la Empresa Española, 
EuropeG Policy Brief 12 October 2017 

IHS  and  Point  Topic  (2017),  Broadband  Coverage  in  Europe  2017.  A  study prepared for  the  European 
Commission DG Communications Networks, Content & Technology.  

IMF  (2017),  'Spain. Selected issues',  IMF  Country  Report 17/24,  January  2017,  International  Monetary 
Fund, Washington, D.C. 

IMF  (2017).  Country  Report  No.  17/319.  Spain.  2017  Article  IV  Consultation.  Press  Release;  Staff 
Report; and Statement by the Executive Director for Spain. October 2017. 

Jin,  Y.,  A.  Caldera  Sánchez  and  P.  Garcia  Perea  (2017). Reforms  for  more  and  better  quality  jobs  in 
Spain.  OECD.  Economics  Department  Working  Papers,  No.  1386,  OECD  Publishing, 
Paris. http://dx.doi.org/10.1787/72275f0b-en 

Jansen, M., Jimenez-Martin, S., Gorjon, L. (2016). El legado de la crisis: El mercado de trabajo espanol y 
las secuelas de la gran recesion. Estudios sobre la Economía Española. 2016/09 

Ministry  of  Education,  Culture  and  Sports  (2017a).  State  System  of  Education  Indicators.  Available  at: 
https://www.mecd.gob.es/servicios-al-ciudadano-mecd/estadisticas/educacion/indicadores-publicaciones-
sintesis/sistema-estatal-indicadores.html 

Ministry of Education, Culture and Sports (2017b). Panorama de la educacion. Indicadores de la OCDE 
2017, available at: https://www.mecd.gob.es/inee/indicadores/indicadores-internacionales/ocde.html 

78 

 
 
 
References 

Ministry of Employment and Social Security (2017). Estrategia de empendimiento y empleo joven. Datos 
de 
available 
at: http://www.empleo.gob.es/es/garantiajuvenil/inscripcion.html 

Inscripcion 

Garantia 

Sistema 

Juvenil, 

de 

en 

el 

Ministry of Energy, Tourism and Digital Agenda (2017). La estrategia digital para una Espana inteligente. 
(http://www.minetad.gob.es/telecomunicaciones/es-ES/Participacion/Paginas/Cerradas/consulta-
estrategia-digital.aspx)  

OECD 
http://www.oecd.org/eco/going-for-growth/ 

(2017), 

Going 

for 

growth. Economic 

Policy 

Reforms, 

available 

at: 

OECD  (2017b),  OECD  Employment  Outlook  2017,  OECD  Publishing,  Paris,  available  at: 
http://dx.doi.org/10.1787/empl_outlook-2017-en 

OECD  (2017c),  Spain:  Country  Health  Profile  2017,  State  of  Health  in  the  EU,  OECD  Publishing, 
Paris/European  Observatory  on  Health  Systems 
at: 
http://dx.doi.org/10.1787/9789264283565-en 

and  Policies,  Brussels.  Available 

OECD  (2017d),  R&D  tax  incentives',  OECD  Science,  Technology  and  Industry  Scoreboard  2017,  pp. 
156-157, OECD, Paris. 

Plan  Anual  de  Política  de  Empleo  2016 
2016), available at: https://www.boe.es/boe/dias/2016/08/31/pdfs/BOE-A-2016-8107.pdf  

(Resolución,  BOE  de  22  de  agosto  de 

Empleo 
Plan 
2016, available at: https://www.sepe.es/contenidos/que_es_el_sepe/publicaciones/pdf/pdf_empleo/pape_2
016.pdf  

Política 

Anual 

de 

de 

Philiponnet,  N.  and  A.  Turrini  (2017),  'Assessing  house  price  developments  in  the  EU',  European 
Economy Discussion Paper 48, May 2017, Publications Office of the European Union, Luxembourg. 

Phillips, S. T, L. Catão, L. A. Ricci, R. Bems, M. Das, G. di Mitali, J. di Giovanni, F. Unsal, M. Castillo, 
J. Lee, J. Rodriguez and J. P. Vargas (2013), 'The external balance assessment (EBA) methodology', IMF 
Working Paper 13/272, International Monetary Fund, Washington, D.C. 

Prades, E. and C. García (2015), 'Actualización de la función de las exportaciones españolas de bienes', 
Economic bulletin 4/2015, April 2015, Bank of Spain, Madrid. 

Prades, E. and P. Villanueva (2017), 'Spain in global value chains', Economic bulletin 3/2017, July 2017, 
Bank of Spain, Madrid. 

Thum-Thysen, A. and E. Canton (2015), 'Estimation of service sector mark-ups determined by structural 
reform  indicators',  European  Economy  Economic  Paper  547,  April  2015,  Publications  Office  of  the 
European Union, Luxembourg. 

Thum-Thysen, A., P. Voigt, B. Bilbao-Osorio, C. Maier and D. Ognyanova (2017), Unlocking investment 
in  intangible  assets',  European  Economy  Discussion  Paper  47,  May  2015,  Publications  Office  of  the 
European Union, Luxembourg. 

Van  der  Marel,  E.,  J.  Kren  and  M.  Iootty  (2016),  'Services  in  the  European  Union:  What  Kinds  of 
Regulatory  Policies  Enhance  Productivity?',  World  Bank  Policy  Research  Working  Paper  7919,  World 
Bank, Washington, D.C. 

79