COMMISSION STAFF WORKING DOCUMENT Country Report Spain 2019 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 EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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: 2019-02-27
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, 27.2.2019  SWD(2019) 1008 final  COMMISSION STAFF WORKING DOCUMENT Country Report Spain 2019     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 EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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(2019) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the MIP in-depth review 

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Financial sector 

4.3.  Labour market, education and social policies 

4.4.  Competitiveness, reforms, and investment 

Annex A: Overview table 

Annex B: Commission Debt Sustainability Analysis and fiscal risks 

Annex C: Standard tables 

Annex D: Investment guidance on cohesion policy funding 2021-2027 for Spain 

References 

LIST OF TABLES 

Table 1.1: 

Key economic and financial indicators - Spain 

Table 2.1: 

Overall assessment of progress with 2018 CSRs 

Table 3.1: 

Outward spill-over heat map for Spain 

Table 3.2: 

Current account balance and net international investment position sensitivity analysis 

Table 3.3: 

MIP matrix 

Table 4.2.1: 

Financial soundness indicators, all banks in Spain 

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 

1 

4 

8 

15 

19 

28 

28 

34 

43 

57 

74 

80 

81 

87 

94 

14 

18 

20 

22 

26 

35 

81 

82 

83 

84 

85 

86 

 
 
 
 
LIST OF GRAPHS 

Graph 1.1: 

Composition of GDP growth 

Graph 1.2: 

Contributions to potential growth 

Graph 1.3: 

Investment rate, 2010 prices 

Graph 1.4: 

Capital intensity and capital productivity 

Graph 1.5: 

Net lending / borrowing by sector 

Graph 1.6: 

Analysis of unit labour costs 

Graph 1.7: 

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

Graph 1.8: 

Regional disparities on selected indicators 

Graph 2.1:  Overall multiannual implementation of 2011-2018 CSRs by February 2019 

Graph 3.1: 

Current account and net international investment position 

Graph 3.2: 

Analysis of the rate of change of net international investment position— Spain 

Graph 3.3:  Gross external debt by sector-type of financial assets 

Graph 4.1.1.1: Evolution of pension expenditure under the 2018 Ageing Report baseline and 

alternative scenarios 

Graph 4.1.2.1: Gross government debt — Spain 

Graph 4.2.1:  Overvaluation gap with respect to price/income, price/rent and fundamental model-

based valuation gaps 

Graph 4.2.2:  Loans to the private sector 

Graph 4.2.3:  Sources of financing of the Spanish economy 

Graph 4.2.4:  Composition of debt — Spain 

Graph 4.2.5:  Decomposition of y-o-y changes in debt-to-GDP ratios, households 

Graph 4.2.6:  Gap to the fundamental-based and prudential benchmarks for household and NFC 

debt 

Graph 4.2.1.1: Determinants of private consumption (1), model forecasts for consumption (2) and 

savings' rate (3) 

Graph 4.2.1.2: Evolution of consumption by quintile, 2007-17 % change (left); and growth in 

consumption of durable goods by income level (right), 2008-17 % change 

Graph 4.2.1.3: Change in household financial balance sheets, 2008-17 % change (left), and change 

in income by income decile, 2008-17 % change (right) 

Graph 4.2.7:  Decomposition of year-on-year changes in debt-to-GDP ratios, quarterly non-

consolidated data, non-financial corporations 

Graph 4.3.1: 

The minimum wage as a percentage of average and median wage: the effect of 

planned increases in Spain 

Graph 4.3.2:  Projected ratio of minimum to average wage in 2019 rate v. unemployment rate by 

region, 2017 

Graph 4.3.3:  Newly signed temporary and permanent contracts 

Graph 4.3.4:  At-risk-of-poverty or social exclusion rate and its components 

Graph 4.3.5:  At-risk-of-poverty or social exclusion rate by age group 

Graph 4.3.6: 

In-work poverty 

Graph 4.4.1:  Productivity gap, ES v. EA-3 in current prices 

2 

8 

8 

9 

9 

10 

11 

11 

13 

15 

21 

21 

22 

29 

32 

35 

35 

36 

37 

37 

38 

39 

40 

40 

41 

45 

46 

48 

52 

53 

53 

57 

 
 
Graph 4.4.2:  REER based on unit labour costs 

Graph 4.4.3:  Exports by total exported value by company 

Graph 4.4.4:  Evolution of business R&D intensity and public R&D intensity 2000-2017 

Graph 4.4.5:  Regional convergence in GDP per head to the EU average – 2014-2017 

Graph 4.4.6:  Weighted dispersion in GDP per head across Spanish regions (1) 

Graph 4.4.7:  RCI and regional R&D expenditure 

Graph 4.4.8:  Disparities in the Regional Competitiveness Index by sub-pillar, across regions and 

compared to EU-average (1) 

LIST OF BOXES 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to fostering 

growth and competitiveness in Spain 

Box 3.1: Outward spill-overs 

Box 4.1.1: Long-term sustainability implications of changes to the pension system and to health care 

policies 

Box 4.1.2: Medium-term projections for government debt 

Box 4.2.1: Determinants of private consumption 

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

Box 4.4.1: Global Value Chains: the role of Spain 

Box 4.4.2: Investment challenges and reforms in Spain 

58 

58 

62 

68 

68 

69 

70 

17 

25 

29 

32 

39 

44 

60 

65 

3 

 
 
 
 
 
EXECUTIVE SUMMARY 

Spain has continued to record strong  economic 
growth  and  rapid  job  creation,  but  important 
challenges remain. Debt has been further reduced, 
but  still  represents  a  source  of  vulnerability. 
Unemployment is falling rapidly, in turn leading to 
a slight fall in poverty and social exclusion, but too 
many  people  remain  without  a  job  or  work  on 
temporary  contracts  and  income  inequality  is 
marked.  Productivity  is  growing  in  line  with  the 
euro 
structural 
area 
the  free  flow  of  productive 
impediments 
resources, 
innovation 
low 
performance and  skill  gaps to fragmented product 
and  service  market  regulation,  are  key  drivers  of 
Spain's productivity gap to the EU average. (1). An 
evolving political context over the past year, with a 
change  of  government  in  June  2018  and  new 
elections  due  in  April  2019,  has  been  reflected  in 
general slow progress on reforms. 

average.  However, 
to 

ranging 

from 

2018  marked  the  fifth  year  of  robust  economic 
growth  for  Spain,  despite  some  deceleration. 
Real  GDP  grew  by  2.5%,  0.5  percentage  points 
less than in 2017. Economic activity was driven by 
consumer  spending  and  capital  formation,  also 
helped  by  the  expansionary  measures  in  the  2018 
budget.  Growth  is  forecast  to  slow  to  2.1 %  in 
2019 and 1.9 % in 2020, remaining well above the 
euro area average. Job creation is also expected to 
moderate,  though  unemployment  will  continue  to 
fall to 13.3 % in 2020. 

Due to its size,  the positive  impact of  economic 
reforms  in  Spain  has  the  potential  to  spill  over 
to  other  countries.  Simulations  show 
that 
ambitiously 
in  market 
regulation, helping unemployed or inactive people 
to  find  work  or  training,  making  the  taxation 
structure  more  growth-friendly  and  increasing 

removing 

barriers 

(1)  This  report  assesses  Spain’s  economy  in  light  of  the 
European Commission’s Annual Growth Survey published 
on 21 November 2018. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  delivering  high-quality  investment, 
efforts  on  productivity  growth, 
focusing 
reform 
inclusiveness  and 
institutional  quality  and  ensuring 
macroeconomic  stability  and  sound public  finance.  At  the 
same 
the  Alert 
the  Commission  published 
Mechanism  Report  (AMR)  that  initiated  the  eighth  round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found  that  Spain  warranted  an  in-depth  review,  which  is 
presented in this report. 

time, 

4 

R&D  subsidies  would  have  a  small,  but  positive 
impact on other euro area countries. 

Supporting Spain’s sustainable growth requires 
investments  to  foster  innovation  and  resource 
efficiency,  to  promote  skills  and  employability, 
to  upgrade  rail  infrastructure  for  transporting 
goods,  extend  energy  connections  with  Europe, 
as  well  as  to  promote  job  quality  and  social 
inclusion.  Capital  formation  in  Spain  rebounded 
after the crisis, though mainly in the private sector. 
Further  investment  on  public  and  private  research 
and  investment,  including  for  small  and  medium-
sized  companies,  as  well  as  on  digitisation  and 
resource efficiency, would bolster competitiveness 
and  the  innovation  capacity  of  the  economy,  if 
acting  in  synergy  with  investment  on  skills. 
Improvements to electricity connections and to rail 
transport  for  goods  are  needed  to  improve  access 
to  markets  in  Spain  and  in  Europe.  Resources 
supporting  employability  and  social  inclusion  are 
key 
labour  market 
the  existing 
challenges and make growth more inclusive. In all 
these  areas,  investment  should  be  targeted  at 
addressing  the  specific  regional  needs.  Annex  D 
identifies  key  priorities  for  support  by 
the 
European  Regional  Development  Fund  and  the 
European  Social  Fund  Plus  over  2021-2027, 
building  on  the  analysis  of  investment  needs  and 
challenges outlined in this report. 

to  address 

Spain has made limited (2) progress on the 2018 
country specific recommendations (CSRs):  

There  has  been  some  progress  in  the  following 
areas: 

  Measures  were  taken  to  modernise  the 
public  employment  services  and  improve 
their  cooperation  with  social  services,  but 
their  capacity  to  support  jobseekers  and 
limited. 
meet  employers’  needs  remains 
There  were  efforts  to  reduce  the  use  of 
temporary contracts in the public sector. Action 
to  fight  their  abuse  in  the  private  sector  is 
bearing  some  fruit  but  the  impact  of  hiring 
incentives remains limited.  

(2)  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. 

 
 
                                                           
                                                           
Executive summary 

There  has  been  limited  progress  in  the  following 
areas: 

social  exclusion 

poverty  or 
remains  high, 
particularly for children, and social transfers (other 
than pensions) have a weak impact in its reduction.  

  The  institutional  framework  governing  the 
prudent management of the public finances was 
not  strengthened.  A  new  governance  structure 
for  public  procurement  is  being  set  up,  but  a 
nation-wide  public  procurement  strategy  has 
still not been put in place.   

  The  implementation  of  the  Law  on  Market 
Unity  is  an  important  tool  to  promote  market 
its 
better 
unity 
implementation is proceeding slowly. 

regulation 

and 

but 

  Advances in the funding and governance of the 
research,  development  and  innovation  system 
have been modest, despite some positive steps. 
Cooperation 
and 
businesses remains weak.  

universities 

between 

  Efforts 

to  better  match 

initial  vocational 
education and training and tertiary education to 
employers’  needs  mostly  focused  on  fostering 
stakeholders.  Regional 
dialogue  between 
disparities in educational outcomes persist. 

  National unemployment assistance schemes are 
fragmented  and  there  are  gaps  in  the  coverage 
of  many  regional  income  guarantee  schemes. 
There has been little improvement in support to 
families, especially those most in need.  

On progress in reaching the national targets under 
the  Europe  2020  Strategy,  Spain  is  on  track  to 
reduce  greenhouse  emissions  and  to  achieve  its 
renewable energy and tertiary education attainment 
targets.  Sizeable  gaps  remain  on  the  employment 
and  early  school  leaving  rates,  even  though  they 
are steadily improving. By contrast, there was little 
progress  towards  the  targets  for  R&D  investment 
and reducing poverty risk.  

indicators  of 

The 
the  Social  Scoreboard 
supporting the European Pillar of Social Rights 
point  to  a  number  of  challenges.  Although 
improving,  the  employment  rate  remains  low, 
including 
for  women,  who  are  still  at  a 
disadvantage  to  men  in  the  jobs  market.  The 
leaving  education  and 
proportion  of  people 
training  early  is  still  high,  and  deep  income  and 
opportunities  inequalities  persist.  The  risk  of 

5 

findings  of 

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

in-depth 

the 

  Risks  to  the  sustainability  of  government 
finances remain significant in the medium to 
long  term.  Public  debt  is  expected  to  have 
further  declined  slightly  in  2018,  to  96.9 %  of 
GDP. Further declines are projected until 2020, 
supported  by  economic  growth  and  a  small 
primary surplus as from 2019. However, when 
adjusted  by  the  impact  of  the  economic  cycle, 
Spain’s government deficit remains stubbornly 
high, as the level of taxation  is low in relation 
to  expenditure.  On  pensions,  recent  temporary 
departures  from  the  2013  reform  and  plans  to 
the 
re-establish 
consumer price index are likely to significantly 
increase  expenditure  in  the  medium  and  long 
run, unless compensating measures are taken. 

link  of  pensions 

the 

to 

  Reduction of private debt has continued but 
it  remains  high.  Total  private  debt  of 
households  and  non-financial  corporations  is 
projected to have fallen further over the twelve 
months  to  June  2018.  As  net  lending  from 
Spanish  banks  has  resumed,  the  pace  of  debt 
reduction has slowed. Household debt has even 
stopped  decreasing  in  2018,  largely  due  to 
growth in new consumer credit. 

  Spain’s  net  external  debt  declined  further 
but  remains  sizeable.  The  current  account 
balance  is  expected  to  remain  in  surplus  until 
2020,  despite  some  weakening.  Together  with 
still  high  GDP  growth,  this  should  continue 
supporting  the  improvement  of  Spain’s  net 
international investment position. 

  Unemployment  continues  to  fall  but 

it 
remains  well  above 
the  EU  average, 
for  young  people.  Continued 
especially 
dynamic  job  creation  has  led  to  a  significant 
reduction  of  the  unemployment  rate,  which 
however remains very high. The increase in the 
minimum  wage  by  22.3 %  in  2019  could  help 
reduce  in-work  poverty  but  also  have  adverse 

 
 
Executive summary 

levels  of  government  and 

all 
insufficient 
reliance  on  policy  evaluation.  Skills  shortages 
and  mismatches  are  another  important  barrier 
to  the  development  and  use  of  advanced 
technologies.  Stronger  cooperation  between 
academia  and  businesses  could  contribute  to 
the  diffusion  of  knowledge  and  help  increase 
the  presence  of  innovative  firms.  All  these 
factors  underlie  Spain's  low  performance  in 
terms 
exports, 
of 
particularly services.   

knowledge-intensive 

  Spain is making progress on digitisation, but 
still  does  not  fully  exploit  the  growth 
potential  offered  by  it.  Spain  is  among  the 
best  EU  performers  in  terms  of  provision  of 
digital  public  services,  but  there  is  still  room 
for 
significant 
efforts.  Despite 
improvement  in  infrastructure,  the  take-up  of 
ultrafast  broadband  remains  low.  Businesses, 
especially small and medium-sized enterprises, 
often  refer  to  shortage  of  information  and 
communication  technology’s  specialists  as  a 
constraining factor in production. 

further 

and 

removing 

  The  restrictiveness  and  fragmentation  of 
regulation within  Spain  prevents  companies 
from  benefiting  from  economies  of  scale. 
Implementing  more  decisively  the  Law  on 
Market  Unity 
identified 
restrictions  for  professional  services  would 
improve  growth  opportunities  and  competition 
in many services sectors. The large presence of 
small companies in the economy also  explains 
Spain's  productivity  gap,  as  their  productivity 
lags  significantly  behind  that  of  larger  firms. 
Small  and  medium-sized  firms  account  for 
around  half  of  R&D  investment  by  firms,  but 
are 
to  absorb  knowledge  and 
technology.   

less  able 

  Incomplete  connections  for  goods  transport 
by  rail  and  limited  integration  with  the  EU 
electricity  and  gas  markets  also  prevent 
Spain  from  fully  benefitting  from  the  EU 
single market. Spain needs to invest further in 
electricity 
the 
target of at least 10% of its installed electricity 
production capacity by 2020. Investment is also 
needed  to  allow  for  greater  use  of  rail  for 
cross-border 
freight 

interconnections 

to  achieve 

transport, 

including 

effects on job opportunities for young and low-
skilled workers.  

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

labour 

to  mobility  of 

  The  widespread  use  of  temporary  contracts 
holds  back  Spain’s  growth  potential  and 
social  cohesion.  Moving  from  a  temporary 
contract  to  a  permanent  one  remains  difficult. 
Barriers 
reduce 
opportunities  for  jobseekers  and  hamper  its 
efficient 
country. 
Incomplete and broken careers for many result 
in  low  entitlements  to  social  protection  and 
weigh on the adequacy and sustainability of the 
pension  system.  They  also  leave  a  large 
untapped  pool  of  workers  in  the  face  of  fast 
population ageing and low productivity growth.  

allocation 

across 

the 

  The  proportion  of  people  at  risk  of  poverty 
or social exclusion decreased slightly in 2017 
but  remains  high,  particularly  among 
children.  Temporary  workers,  the  low-skilled 
and  those  not  born  in  the  EU  face  one  of  the 
highest in-work poverty risks in the EU. Public 
spending  on  family  benefits,  which  is  half  of 
the  EU  average,  remains  poorly  targeted  at 
low-income families. Healthcare delivery could 
better  respond  to  emerging  challenges  related 
to  population  ageing,  disabilities  and  chronic 
conditions.  

  Skills  mismatches  and  shortages  weigh  on 
productivity  growth,  especially 
in  some 
regions.  The  proportion  of  people  leaving 
training  early  without  a 
education  and 
qualification  remains  high  and  displays  large 
regional variation, as do educational outcomes. 
The  take  up  of  vocational  education  and 
training  by  young  students  is  still  low,  as  is 
participation  in  adult  learning.  New  tertiary 
graduates  still  face  challenges  finding  suitable 
work.  

  Innovation  is  hampered  by  a  number  of 
factors  and  this  also  affects  productivity. 
Spain is a “moderate innovator” in the EU. The 
innovation  performance  of  the  country  suffers 
from  underinvestment  in  public  and  private 
R&D,  but  also  from  weak  coordination  across 

6 

 
 
Executive summary 

connections  with  France  and  Portugal  and 
connections to ports and logistic hubs.  

  Increasing 

the 

in  final  and 

share  of  energy 

from 
renewables  and  energy  efficiency 
for 
buildings  would  be  conducive  to  more 
sustainable  growth.  Latest  figures  show  an 
in  primary  energy 
increase 
consumption  and  the  latter  now  exceeds  the 
indicative  2020  threshold.  With  a  17.5 % 
energy  share  of  renewables  in  2017,  Spain  is 
progressing  well  to  meet  its  20%  2020  target, 
but  filling  the  gap  to  that  target  is  still 
demanding.  As  CO2  emissions  from  transport 
are  rising,  further  action  is  also  needed  to 
enhance 
to  a  clean  and 
sustainable mobility. 

transition 

the 

  Spain  faces  specific  territorial  cohesion 
challenges, such as depopulation and ageing in 
rural  areas, on the one  hand,  and  demographic 
pressure  in  some  urban  areas,  on  the  other. 
Certain  areas  of  Spain  are  amongst  the  most 
exposed in Europe to climate change and there 
are  significant  challenges  in  managing  water 
and wastewater.  

  Stronger 

and 

sustained 

coordination 
between  national  and  regional  authorities 
could  make  policies  more  effective.  Spain’s 
high  degree  of  decentralisation  makes  regions 
key actors for the successful implementation of 
policies  and  reforms.  In  policy  areas  where 
of 
both 
reform 
government 
implementation, 
and 
accountability remain a challenge.  

in 
coordination 

involved 

regional 

national 

levels 

and 

are 

7 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Economic growth 

reforms 

ongoing 

structural 

expansion 

implemented 

Spain  has  continued  to  record  robust  growth, 
but  the  economy  has  started  to  show  signs  of 
deceleration.  The 
is 
underpinned  by  a  more  balanced  growth  pattern 
than before the crisis, also reflecting the impact of 
the 
the 
aftermath of the crisis.  2018 marked the fifth year 
of  expansion  of  Spain's  economic  activity,  with 
real GDP growing by 2.5 %, 0.5 percentage points 
less  than  in  2017  but  still  well  above  the  EU 
average.  (3)  Supported  by 
the  expansionary 
measures in the 2018 budget, private consumption 
and  investment  were  the  main  growth  drivers, 
while  net  exports  detracted  0.4  pps.  from  growth 
(Graph 1.1). 

in 

Graph 1.1:  Composition of GDP growth 

to 

to  ease,  also  due 

increase  slightly  further  in  2020.  Job  creation  is 
forecast 
the  expected 
dampening impact of the increase in the minimum 
wage.  Still,  employment  growth  is  set  to  remain 
robust  and  allow  for  further  reductions  in  the 
unemployment  rate.  After  years  of  buoyant 
growth, investment is also expected to moderate in 
2019  and  2020  but  continue  growing  above  final 
demand, both in equipment and construction.  

Risks to the growth outlook mainly relate to the 
risks 
global  environment.  Most  downside 
identified in the first half of 2018, including lower 
than  expected  global  and  EU  growth  and  trade 
tensions, have materialized. This resulted in lower 
than  expected  growth  of  exports  in  2018  and 
translated  into  small  downward  revisions  of  the 
growth forecast for 2019 and 2020. (4) Remaining 
downside  risks  to  the  global  environment  and 
increased  uncertainty  could  further  constrain 
growth over the two years.  

Graph 1.2:  Contributions to potential growth 

Source: European Economic Forecast, autumn 2018 

Economic  activity  is  expected  to  moderate 
further  in  2019  and  2020  as  the  cycle  matures. 
Growth is expected to decelerate to 2.1 % in 2019 
and 1.9 % in 2020. The deceleration would mainly 
be  driven  by  a  slowdown  in  private  consumption, 
as pent-up demand is absorbed and households set 
aside  part  of 
income.  The 
their  disposable 
household saving rate is thus projected to rebound 
in 2019 from the historic low recorded in 2018 and 

(3)  GDP  growth  and  inflation  forecasts  are  based  on  the 
European  Commission  2019  winter  forecast  (which  only 
takes  into  consideration  data  released  until  31st  January 
2019). All other variables and GDP components are based 
on the Commission 2018 autumn forecast 

Source: European Commission. 

Potential  growth 
is  projected  to  continue 
increasing.  After  plummeting  during  the  crisis 
years,  potential  output  growth  has  continued  to 
increase, and is estimated to  reach 1.5 % in 2020, 
converging  towards the euro area average (1.6 %) 
(Graph 1.2). More than half of this increase comes 

(4)  Compared  to  the  Commission  2018  spring  forecast,  the 
growth  forecasts  for  Spain  were  revised  down  in  autumn 
2018 by 0.2 pps. for both 2018 and 2019, and by 0.1 pps. in 
both 2019 and 2020 in winter 2019. 

8 

-10-8-6-4-20241011121314151617181920ppsPrivate consumptionPublic consumptionGFCFNet exportsInventoriesReal GDP (y-o-y%)pp. of GDPforecast-4-3-2-101234505060708091011121314151617181920Rate of change y-o-y (%)Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential GrowthReal GDP growth 
 
 
 
                                                           
 
 
                                                           
1. Economic situation and outlook 

from labour, mostly due to the fall of the structural 
unemployment  rate  (as  proxied  by  the  NAWRU), 
which  nevertheless  remains  much  higher  than  the 
EU  average;  and,  as  of  2016,  positive  migration 
flows.  The  contribution  of  capital  and  total  factor 
productivity  (TFP)  to  potential  output  is  now  in 
line  with  the  euro  area  average,  after  having 
increased  since  the  crisis.  The  output  gap  is 
expected  to  have  become  positive  in  2018  for  the 
first time since 2008, and slowly widen until 2020, 
when it will reach 2.2 %.  

capital (Graph 1.4). This trend was reverted during 
the  recovery,  as  strong  job  creation  resulted  in  a 
decline  in  capital  intensity  and  an  increase  in  its 
productivity  relative  to  the  euro  area,  suggesting 
that  capital  allocation  has  improved  in  recent 
years.  The  increase  in  total  factor  productivity 
growth relative to the euro area also points in this 
direction,  suggesting  a  structural  improvement  in 
the quality of investment. 

Graph 1.4:  Capital intensity and capital productivity 

Investment 

Non-construction  investment  now  exceeds  its 
pre-crisis  peak.  After  reaching  almost  30 %  of 
GDP  in  the  pre-crisis  peak  in  2007  (two  thirds  of 
which  was  construction), 
the  rate  of  capital 
formation  fell  to  19 %  in  2013,  driven  by  the 
collapse  in  residential  investment.  Construction 
investment has started again to increase its weight 
in GDP but at 11 % of GDP in 2018, it remains far 
from 
level.  By  contrast,  non-
construction  (mainly  equipment)  investment  now 
stands at a record-high of 11.5 % of GDP.  

its  pre-crisis 

Graph 1.3: 

Investment rate, 2010 prices 

Source: AMECO. 

Capital intensity in Spain is above the euro area 
average,  but  its  productivity  is  still  below, 
despite having improved. In the pre-crisis period 
investment  flowed  to  non-tradable  sectors,  and  in 
particular, construction, which at the time had high 
profitability  but  low  productivity.  This  resulted  in 
high  capital  intensity,  but  low  productivity  of 

9 

(1) Capital intensity: net capital stock at 2010 prices per 
person employed; total economy, relative to EA 
(2) Capital productivity: gross domestic product at 2010 
reference levels per unit of net capital stock ; total 
economy, relative to EA 
(3) Total factor productivity relative to the euro area, 
2010=100 
Source: AMECO. 

External position 

The  contribution  of  net  exports  to  growth  is 
expected  to  improve  over  the  Commission’s 
forecast horizon. The contribution of the external 
sector  to  growth  is  projected  to  remain  negative 
but  improve  in  2019,  and  turn  neutral  in  2020. 
Despite  weak  growth  in  global  trade,  exports  are 
forecast to accelerate slightly in 2019 and 2020, as 
they  recover  some  of  the  market  shares  lost  in 
2018.  At  the  same  time,  imports  are  expected  to 
decelerate broadly in line with final demand. 

The  current  account  balance  has  declined,  but 
is  expected  to  remain  in  surplus.  The  current 
account  surplus  declined  in  2017  and  is  expected 
to  weaken  further  in  2018,  due  to  the  worse-than 
expected trade performance and a deterioration of 

051015202530350002040608101214161820% of GDPNon-residential construction investmentResidential constructionNon-construction investment808590951001051101151200002040608101214161820Capital intensity ES/EA (1)Capital productivity ES/EA (2)TFP ES/EA (3) 
 
 
 
1. Economic situation and outlook 

terms of trade. It will then remain broadly stable at 
around 1 % of GDP over the period 2019-2020, as 
swings  in  terms  of  trade  compound  changes  in 
export  and  import  volumes.  In  cyclically-adjusted 
terms, and after years of improvement, the current 
account  balance  is  expected  to  have  declined 
slightly in 2018 to 1.5 % of GDP. 

in recent years, housing prices remain far from the 
pre-crisis  maximum  levels  both  in  nominal  and 
real terms. House price developments vary greatly 
across regions, with larger increases in areas where 
the  stock  of  unsold  houses  is  lower.  Despite  the 
pickup  in  housing  investment  in  recent  years,  its 
volume in 2018-Q3 was still at less than half of the 
pre-crisis peak (see Section 4.2).  

in 

the 

(partly 

limited 

reflecting 

improvements 

improvements 

Persistent current account surpluses are slowly 
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) 
have 
the  net 
international  investment  position  (NIIP).  Still,  the 
net international investment position has narrowed 
by more than 19 pps. of GDP since its peak, but at 
-80.6 %  of  GDP  in  Q3-2018,  it  remains  very 
negative. Continued current account surpluses and 
high nominal GDP growth projected until 2020 are 
expected to facilitate a further improvement of the 
net 
(see 
Section 3). Across sectors, the net lending position 
of  the  private  sector  since  2009  (to  a  large  extent 
due to the corporate  sector) has been partly offset 
with 
the  general 
government sector (Graph 1.5). 

the  borrowing  position  of 

international 

investment 

position 

Private and public debt 

The  stock  of  private  debt  has  continued 
declining despite resumed growth of new credit, 
but  deleveraging  needs  persist.  Despite  rapid 
substantial  deleveraging  by  both  households  and 
corporates,  private  sector  debt  remains  high.  The 
debt  level  of  the  corporate  sector  has  continued 
declining  throughout  2018  despite  the  increase  in 
new  credit,  driven  by  robust  GDP  growth.  By 
contrast,  the  total  stock  of  household  debt  has 
stopped  declining  in  2018  due  to  significant 
growth in new credit to finance durable consumer 
spending,  as  well  as  growth  in  lending  for  house 
purchases  and  a  reduction  in  the  repayment  of 
mortgages. Deleveraging needs persist, particularly 
that  are 
for  some  over-indebted  households 
particularly vulnerable to changes in the economic 
and  financial  situation  (such  as 
low-income 
households) (see Sections 3 and 4.2). 

After  the  sharp  adjustment  that  followed  the 
crisis,  the  housing  market  and  construction 
sector are recovering. Despite sustained increases 

Graph 1.5:  Net lending / borrowing by sector 

Source: INE. 

The public debt ratio is set to continue its slow 
fall  but  remain  high  over  the  forecast  horizon. 
The  general  government  debt  ratio  is  expected  to 
decline  slowly  from  98.1 %  in  2017  to  95.4 %  of 
GDP in 2020, as strong nominal GDP growth, and 
–  as  from  2019  –  a  small  primary  surplus,  more 
than  offset  the  impact  of  interest  expenditure  and 
debt-increasing  stock-flow  adjustments  over  the 
forecast  period.  After  reaching  3.1 %  of  GDP  in 
2017, the general government deficit is expected to 
decline  further  to  2.7 %  of  GDP  in  2018,  as  still 
robust economic growth largely offsets the impact 
of the expansionary  measures in the 2018 budget. 
According 
the  Commission  2018  autumn 
forecast, the  headline deficit is then  set to decline 
to 2.1 % of GDP in 2019 and to narrow to 1.9 % of 
GDP  in  2020,  on  the  back  of  continued  firm 
economic  growth  and  the  net  impact  of  the 
measures  that  had  been  announced  in  the  2019 
Draft  Budgetary  Plan.  The  structural  deficit  is 
expected  to  worsen  slightly  to  3.1 %  of  GDP  in 
2018  and  to  remain  almost  unchanged  over  the 
following  two  years  with  unchanged  policies. 
While  some  of  the  new  expenditure  mentioned  in 

to 

10 

-15-10-50510150102030405060708091011121314151617% of GDPHouseholds and NPISHGeneral governmentCorporationsTotal economy 
 
1. Economic situation and outlook 

Employment growth started to slow down in 2018, 
but  at  2.5%,  it  remained  robust.  Job  creation  is 
forecast to slow down further in 2019 and 2020 as 
a consequence of lower growth of final demand, as 
well  as  the  expected  dampening  impact  of  the 
increase  in  the  minimum  wage  in  2019.  The 
unemployment  rate  is  set  to  continue  falling,  to 
13.3 % in 2020 (the lowest since 2008).   

Nominal wages have started to grow again, and 
are  expected  to  exceed 
inflation  over  the 
forecast horizon. After years of very moderate or 
negative growth, wages increased by 1 % in 2018. 
Wage growth is projected to peak at 2.4 % in 2019, 
also  under  the  impact  of  the  increase  in  the 
minimum  wage,  and  then  moderate  but  still  be 
above  inflation  in  2020.  As  labour  productivity  is 
forecast  to  grow  moderately  over  the  forecast 
horizon, this will lead to increases in nominal unit 
labour  costs  (Graph 1.6).  In  2019,  these  are 
expected to grow above the euro area average, but 
in  2020  Spain  would  continue  to  record  cost 
competitiveness gains.  

Graph 1.7:  Activity, unemployment, long-term 

unemployment, youth unemployment, NEET 

(1) Activity 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. 

A  high  level  of  labour  market  segmentation, 
long-term  unemployment,  and  population 

Graph 1.6:  Analysis of unit labour costs 

Source: AMECO, European Commission 

the Draft Budgetary Plan has already been adopted 
(notably,  the  increase  of  the  minimum  salary,  the 
increase  in  pensions  and  the  increase  of  the  wage 
of  public  employees),  the  draft  Budget  Law  for 
2019 submitted to Parliament on 14 January 2019 
was  rejected  on  13  February  2019.  General 
elections  shall  be  held  on  28  April  2019.  The 
situation of the general government deficit shall be 
reassessed in light of evolving circumstances in the 
forthcoming Commission 2019 spring forecast.  

Inflation 

Core inflation is expected to increase gradually, 
as  the  output  gap  widens.  Headline  inflation 
reached 1.7% in 2018 and is forecast to decline to 
1.2%  in  2019  due  to  base  effects  as  oil  prices 
stabilise. It is then set to increase to 1.5% in 2020, 
driven  by  a  gradual  pick-up  in  core  inflation,  as 
wages  increase,  especially  in  2019  under  the 
impact of the increase in the  minimum  wage, and 
the positive output gap widens.  

Labour market 

Unemployment is set to continue falling, despite 
an  expected  slowdown  in  job  creation.  The 
economic  expansion  has  been  accompanied  by 
strong job creation, supported by the impact of the 
previous 
reforms  and  wage 
moderation.  In  net  terms,  more  than  2.4  million 
jobs have been created since the recovery started in 
Q1-2014,  bringing  the  unemployment  rate  to 
adjusted). 
14.5 % 

labour  market 

in  Q4-2018 

(seasonally 

11 

-4-20246803040506070809101112131415161718*19*20*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU286264666870727476788001020304050600102030405060708091011121314151617%%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 

point  to  a  slight  improvement  in  2018  (income 
year  2017).  Likewise,  the  Gini  coefficient  (7) 
decreased  slightly  from  34.5  in  2016  to  34.1  in 
2017,  while  remaining  above  the  EU  average 
(30.3)  and  its  pre-crisis  level  (32.4).  In  addition, 
the high proportion of children at risk of poverty or 
social exclusion (31.3 % in 2017) and high rate of 
early  school  leaving  suggests  many  young  people 
face  a  disadvantaged  start  in  life,  with  low 
prospects  for  upward  social  mobility  (OECD, 
2018a). 

Regional disparities 

in  particular, 

Significant  regional  socio-economic  disparities 
persist  in  Spain.  Regional  disparities  in  terms  of 
GDP  per  head  have  been  closely  linked  to  labour 
market  developments,  and 
the 
employment rate (European Commission 2018a, p. 
9-10). Disparities in GDP per head increased after 
2008  due  to  the  asymmetric  impact  of  labour 
shedding  across  regions,  and  started  to  decline 
only  slightly  after  2015  in  parallel  with  the 
recovery  of  the  labour  market,  but  remain  larger 
than  in  the  pre-crisis  period.  Beyond  GDP,  many 
socio-economic  indicators  continue  to  present 
wide territorial disparities at regional level, such as 
innovation,  entrepreneurship,  competitiveness  of 
small  and  medium-sized  companies.  Regional 
disparities  are  the  widest  in  labour  and  social 
outcome 
regions 
indicators,  where  most 
underperform  relative  to  the  EU-average  (see 
Section 4.3 and 4.4.3 and Graph 1.8).  

(7)  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".  

ageing  weigh  on  potential  growth.  The  youth 
unemployment  rate  has  decreased  progressively, 
from  53 %  in  2014  to  33.1 %  in  Q4-2018,  as  did 
the long-term unemployment rate (from 12.9 % in 
2014 to 6.3 % in Q4-2018) (Graph 1.7). However, 
both rates continue to be among the highest in the 
EU.  Although  open-ended  contracts  represent  an 
increasing share of job creation, this  has  not been 
sufficient  to  reduce  the  share  of  workers  on 
temporary  contracts  (26.9 %  in  Q3-2018),  which 
remains among the largest in the EU. Activity rates 
are  stagnant  since  2012  and  slightly  decreased  in 
the 
ageing 
2017.  Population 
composition of the active population, and calls for 
increasing  labour  supply  and  the  duration  of 
working  careers.  A  highly  segmented  labour 
market,  population  ageing  and  skills  gaps  and 
mismatches act as a brake on potential growth and 
productivity.  

affecting 

is 

Poverty, inequality and social inclusion 

in 

Improvements  in  the  social  situation  reflect 
progress 
labour  market  conditions  but 
poverty indicators remain above their pre-crisis 
levels. Since the peak of 2014, around 1.2 million 
people  stopped  being  at  risk  of  poverty  or  social 
exclusion.  The  proportion  of  people  at  risk  of 
poverty or social exclusion (AROPE) has declined 
mostly thanks to a reduction in the share of people 
living  in  low  work-intensity  households.  In  2017, 
the  proportion  of  people  at-risk-of-poverty,  a 
measure of relative poverty, was 21.6 %, above the 
EU  average  (16.9 %)  and  its  pre-crisis  level 
(19.8 %  in  2008).  At  the  same  time,  the  share  of 
people experiencing severe material deprivation, a 
measure  of  absolute  poverty,  stood  at  5.1 %  in 
2017  (below  the  EU  average  of  6.6%).  As 
highlighted 
Scoreboard 
accompanying the European Pillar of Social Rights 
(see Section 4.3.3), the poverty-reducing impact of 
the benefits system remains below the EU average 
and is particularly low for children. 

Social 

the 

in 

Income inequalities remain high, while showing 
slight  signs  of  improvement.  In  2017 (5),  the 
relative income of the top 20 % of households was 
unchanged  at  6.6  times  that  of  the  poorest  20 %, 
above  the  EU  average  (5.1).  Flash  estimates  (6) 

(5)  EU-SILC survey , income year 2016 
(6)  Experimental  flash  estimates  produced  by  Eurostat  for 

income year 2017. 

12 

 
                                                           
                                                           
1. Economic situation and outlook 

Graph 1.8: 

Regional disparities on selected indicators 

(1)GDP in PPS per head (2016), Labour Productivity in PPS 
(2016), Employment rates (20-64) (2017), Unemployment rate 
(15-74) (2017), ESL: Early School Leavers (2017); AROPE: at-
risk-of poverty or social exclusion rate (2017). 
Source: Eurostat, European Commission calculations 

13 

-3-2-101234GDP per headProductivityEmploymentUnemploymentESLAROPENormal, EU28 = 0EU28Non-capital regionsCapital regionMS average 
 
 
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. 
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation         
Source: Eurostat and ECB as of 31-1-2019, where available; European Commission for forecast figures (Winter forecast 2019 for 
real GDP and HICP, Autumn forecast 2018 otherwise). 

14 

2004-072008-122013-1520162017201820192020Real GDP (y-o-y)3,7-1,31,13,23,02,52,11,9Potential growth (y-o-y)3,60,9-0,10,71,01,21,41,5Private consumption (y-o-y)3,8-2,00,52,92,5...Public consumption (y-o-y)5,81,3-0,21,01,9...Gross fixed capital formation (y-o-y)6,1-8,42,52,94,8...Exports of goods and services (y-o-y)4,80,94,25,25,2...Imports of goods and services (y-o-y) 8,5-5,23,82,95,6...Contribution to GDP growth:Domestic demand (y-o-y)4,9-3,10,72,42,8...Inventories (y-o-y)0,00,00,1-0,10,1...Net exports (y-o-y)-1,31,80,20,80,1...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1,6-0,2-0,50,00,20,20,20,3Capital accumulation (y-o-y)1,70,70,20,30,30,40,50,5Total factor productivity (y-o-y)0,30,40,20,50,60,60,60,7Output gap2,5-4,0-7,0-2,2-0,41,01,82,2Unemployment rate9,219,124,219,617,215,614,413,3GDP deflator (y-o-y)3,80,50,20,31,21,41,61,7Harmonised index of consumer prices (HICP, y-o-y)3,22,30,2-0,32,01,71,21,5Nominal compensation per employee (y-o-y)3,92,50,8-0,50,31,02,41,7Labour productivity (real, person employed, y-o-y)-0,21,70,70,60,4...Unit labour costs (ULC, whole economy, y-o-y)3,50,40,0-0,60,20,91,91,2Real unit labour costs (y-o-y)-0,3-0,1-0,3-0,9-1,0-0,50,3-0,5Real effective exchange rate (ULC, y-o-y)2,6-1,7-1,1-0,80,50,6-0,4-0,9Real effective exchange rate (HICP, y-o-y)1,2-0,5-1,00,81,42,0-1,2-0,8Net savings rate of households (net saving as percentage of net disposable income)2,23,93,41,8-0,8...Private credit flow, consolidated (% of GDP)26,9-0,7-6,2-1,10,4...Private sector debt, consolidated (% of GDP)165,3196,5166,1147,1139,3...of which household debt, consolidated (% of GDP)73,282,672,764,561,1...of which non-financial corporate debt, consolidated (% of GDP)92,1113,993,482,778,2...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).4,46,64,83,8...Corporations, net lending (+) or net borrowing (-) (% of GDP)-5,43,94,65,15,65,44,54,5Corporations, gross operating surplus (% of GDP)20,523,924,024,725,325,525,225,5Households, net lending (+) or net borrowing (-) (% of GDP)-3,31,33,21,7-0,4-1,3-1,1-1,1Deflated house price index (y-o-y)9,6-8,3-2,24,64,5...Residential investment (% of GDP)11,67,24,34,85,2...Current account balance (% of GDP), balance of payments-7,9-4,21,32,31,81,10,91,0Trade balance (% of GDP), balance of payments-5,2-1,22,73,22,9...Terms of trade of goods and services (y-o-y)0,3-1,10,40,5-0,8-1,4-0,50,0Capital account balance (% of GDP)0,70,40,60,20,2...Net international investment position (% of GDP)-65,5-88,8-94,2-85,3-83,8...NIIP excluding non-defaultable instruments (% of GDP) (1)..-69,5-62,4-58,1...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)115,8150,6155,8157,0155,9...Export performance vs. advanced countries (% change over 5 years)7,1-3,8-4,7-0,74,8...Export market share, goods and services (y-o-y)..1,15,80,4...Net FDI flows (% of GDP)3,9-0,30,41,31,4...General government balance (% of GDP)1,3-9,0-6,1-4,5-3,1-2,7-2,1-1,9Structural budget balance (% of GDP)..-1,5-3,1-2,9-3,2-3,2-3,3General government gross debt (% of GDP)40,561,598,499,098,196,996,295,4Tax-to-GDP ratio (%) (3)36,232,134,334,134,534,935,335,3Tax rate for a single person earning the average wage (%)20,421,122,421,4....Tax rate for a single person earning 50% of the average wage (%)10,69,511,210,2....Key economic and financial indicators - Spainforecast 
 
 
 
1. Economic situation and outlook 

15 

 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

74 % 

recommendations 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Spain  have 
recorded  at  least  ‘some  progress'.   (8)    26 %  of 
the  country-specific 
(CSRs) 
recorded 'limited' or 'no progress' (Graph 2.1). The 
reforms  carried  out  during  and  in  the  years  after 
the economic and financial crisis have contributed 
to  the  Spanish  economy's  strong  performance  in 
the  last  years.  The  speed  of  implementation  has, 
however,  slowed  somewhat  since  2014  and  there 
has been some reform backtracking, namely in the 
area of pensions. In several policy areas subject to 
CSRs,  both  the  national  and  regional  levels  of 
government  are 
those  areas, 
involved. 
coordination  and  unclear  accountability  remain 
challenges to a successful reform implementation. 

In 

the 

extent  been 

addressed,  but 

Recommendations  concerning 
financial 
sector  and  insolvency  framework  have  to  a 
large 
the 
sustainability  of  public  finances  is  still  not 
ensured.  The  restructuring  of  banks  that  had 
received  state  aid  has  been  accomplished  and 
confidence in the resilience of the Spanish banking 
sector as a whole has been restored. The reform of 
the corporate and personal insolvency frameworks 
has  facilitated  private  debt  reduction  and  made 
company defaults less onerous. The 2011 and 2013 
pension  reforms  made  public  finances  more 
sustainable in the long term. However, the decision 
to  temporarily  depart  from  the  index  for  pension 
revaluation  in  2018  and  2019  will  be  costly.  A 
more  permanent  relinking  of  pensions  to  the 
Consumer  Price  Index  as  from  2020  that  is 
currently being discussed would further raise long-
term  spending  on  pensions,  unless  offset  by  other 
measures.  The  fiscal  framework  has  seen  various 
improvements  since  2012,  but 
the  automatic 
implementation of the Stability Law's mechanisms 
is not ensured.  

In  labour  market  and  social  policy,  significant 
gaps  remain  despite  substantial  progress  in 
recent  years.  The  past  reforms  of  the  labour 
market  have  supported  strong  employment  gains, 
by  increasing  its  responsiveness  to  economic 
growth.  Still,  unemployment  and 
long-term 
unemployment  remain  high,  especially  among 

(8)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 4.1, 4.2, 4.3 and 4.4. 

young  and  low  skilled  workers.  Some  steps  have 
been  taken  to  address  the  widespread  use  of 
temporary  contracts,  often  of  short  duration. 
However,  their  impact  has  so  far  been  modest. 
Progress has been less prominent in social policies, 
notably  concerning  income  support  schemes  and 
family policies, as well as in education. 

Graph 2.1:  Overall multiannual implementation of 2011-

2018 CSRs by February 2019 

(1) The multiannual assessment looks at the implementation 
progress since a CSR was first adopted until February 2019. 
(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 

to 

its 

address 

internal  market  and 

Limited  progress  has  been  achieved 
in 
implementing  product  market  reforms  and 
improving  research  and  innovation  in  recent 
years.  In  the  past  few  years,  Spain  has  received 
regulatory 
recommendations 
fragmentation 
to 
in 
strengthen  research  and  innovation,  a  prerequisite 
for  sustainable  productivity  growth.  The  Law  on 
Market Unity has been in force for five years, and 
while it is being applied its impact is still limited. 
The  lack  of  strong  cooperation  at  all  levels  of 
government  on  market  unity  has  so  far  translated 
into few tangible results. No policy measures have 
been taken to remove restrictions to firm growth or 
those  affecting  professional  services,  which  had 
been  the  subject  of  previous  years'  CSRs.  Public 
support  for  R&D  remains  low.  There  were  a  few 
advances  in  innovation  governance  and  public-

16 

No Progress1%Limited Progress25%Some Progress40%Substantial Progress22%Full Implementation12% 
 
                                                           
 
2. Progress with country-specific recommendations 

in 

private  cooperation 
tertiary 
education,  but  some  of  the  measures  taken  may 
need  some  time  before  they  have  a  measurable 
impact. 

research  and 

the 

Overall,  Spain  has  made  limited  progress  in 
addressing 
Country-specific 
2018 
Recommendations (see Table 2.1 and Annex A).   
While the strengthening of the public procurement 
framework  saw  limited  advances,  no  progress  has 
been  recorded  to  strengthen  the  fiscal  framework 
(CSR  1),  and  therefore  in  addressing  the  Council 
Recommendations  for  the  Euro  Area  to  ensure 
sustainable public finances and remove investment 
bottlenecks. In labour market, social and education 
policy  (CSR 2),  some  regions  have  advanced 
towards  better  coordination  between  public 

employment  and  social  services,  and  efforts  have 
been  undertaken  to  fight  the  abuse  of  temporary 
contracts and to reduce their number in the public 
sector. However, overall progress has been limited 
for CSR 2. The level of public investment in R&D 
remains unchanged in the absence of a new Budget 
Law for 2019 and there have been limited steps to 
enhance  the  evaluation  culture  for  innovation 
policies.  National  courts  are  applying  the  Law  on 
Market Unity. However, the few measures taken to 
help 
in  sectorial 
conferences,  trainings),  have  not  had  a  visible 
impact yet. Overall, progress has also been limited 
on CSR 3.  

implementation 

(work 

its 

17 

 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to fostering growth 
and competitiveness in Spain 

Spain is one of the largest beneficiaries of EU funds, concentrated in areas of  highest EU value-added and on existing 
challenges  and  opportunities.  The  European  Structural  and  Investment  Funds  (ESI  Funds)  deliver  a  critical  mass  of 
investments  to  support  Spain  in  fostering  lasting  socio-economic  convergence,  resilience  and  territorial  cohesion.  A  total 
amount  of  EUR  39.9  billion  was  allocated  to  Spain  for  the  2014-2020  Multiannual  Financial  Framework,  potentially 
representing around 0.5 % of the country’s current GDP. By the end of 2018, some EUR 24 billion were allocated to specific 
projects, representing about half of the total budget available for the 2014-2020 period (including the national contribution). In 
addition, around EUR 600 million were allocated to projects on strategic energy infrastructure and cross-border interconnections 
through the Connecting Europe Facility EU funding instrument. Spanish research institutions, innovative firms, researchers and 
academics benefitted also from Horizon 2020 EU funding instrument with EUR 3.3 billion disbursed so far. 

European Structural and Investment Funds support the implementation of the Country-specific Recommendations and 
structural reforms in Spain. Actions financed include closer collaboration between businesses and research institutions, thus 
boosting the research and innovation system.  As a result, European Structural and Investment Funds  helped more than 3 000 
enterprises in building cooperation with research institutions and about 450 firms in introducing new products on the markets in 
2017.  European Structural and Investment Funds  are also promoting access and adaptation to the labour market, investing in 
education and training, and combatting poverty, discrimination and social exclusion, with a strong focus on youth, in line with 
the principles of the European Pillar of Social Rights. So far, the European Social Fund and the Youth Employment Initiative 
have supported more than 3 million activities, among others, employment subsidies, traineeships, apprenticeships, counselling, 
training  courses,  dual  Vocational  Education  and  Training  and  social  services  targeting  participants  of  different  ages  and 
backgrounds. 

EU funding contributes to mobilising significant private investment. EUR 1.4 billion of European Structural and Investment 
Funds (including the EUR 800 million for the SMEs Initiative) has been allocated to leverage additional private capital in the 
form of loans, guarantees and equity. The SMEs Initiative has already offered guarantees allowing 43 500 enterprises to receive 
loans and pursue their investments in the development of the companies.  

In  addition,  the  Commission  can  provide  tailor-made  technical  support  upon  a  Member  State's  request  via  the 
Structural Reform Support Programme to help implement growth-sustaining reforms to address challenges identified in 
the European Semester process or other national reforms. In Spain, work has started, for example, on assisting the Ministry 
of  Justice  to  enhance  the  implementation  of  e-justice,  on  carrying  out  an  expenditure  review  to  identify  possible  areas  for 
improving spending efficiency, and on improving the management capacity of the European Maritime and Fisheries Funds. 

The overall volume of approved operations by the European Investment Bank, with the European Fund for Structural 
Investment (EFSI) backing, amounts to EUR 8.3 billion, which is set to trigger a total of EUR 45.4 billion in additional 
private and public investments (February 2019). Spain ranks amongst the highest in the EU in overall volume of approved 
operations as a share of GDP. 86 projects involving Spain were approved under the infrastructure and innovation window of the 
European  Fund  for  Structural  Investment;  amounting  to  EUR  7  billion  which  should,  in  turn,  generate  EUR  30.7  billion  of 
investments. Under the SME component, 27 agreements with intermediary banks were approved for a total of EUR 1.3 billion, 
which  should  mobilise  close  to  EUR  15.5  billion  of  total  financing.  This  support  is  expected  to  benefit  129  854  small  and 
medium-sized enterprises and mid-cap companies. As an example of project supported by the European Investment Bank, the 
Empresa Municipal de Transportes of Palma de Mallorca is receiving EUR 30 million to replace the company’s existing urban 
buses with new cleaner vehicles powered by compressed natural gas.  

EU action contributes to strengthen  national, regional and local authorities as well as the civil society.  More than EUR 
700  million  have  been  allocated  for  strengthening  capacity  of  public  administrations  at  different  levels  and  prompting  close 
cooperation with stakeholders.  

There are also other Commission initiatives contributing to boost the structural transformation of the economy. The pilot 
action on Industrial Transition helps to develop a comprehensive strategy for regional economic transformation building on their 
smart specialization strategy, clusters and digitization of industry plans. The action encourages interregional cooperation and the 
creation of value chains across European regions, identifies collaboration and funding opportunities at European, national and 
regional  level,  promotes  regional  and  cluster  partnerships  focusing  on  mutual  learning  and  sharing  of  good  practices  in 
innovation policies. 

More information at: https://cohesiondata.ec.europa.eu/countries/ES  

18 

 
Table 2.1: 

Overall assessment of progress with 2018 CSRs 

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

19 

Spain - 2018 CSRs Overall assessment of progress: Limited CSR 1: Ensure compliance with Council Decision (EU) 2017/984 giving notice under the excessive deficit procedure, including through measures to enforce the fiscal and public procurement frameworks at all levels of government. Thereafter, ensure that the nominal growth rate of net primary government expenditure does not exceed 0,6 % in 2019, corresponding to an annual structural adjustment of 0,65 % of GDP. Use windfall gains to accelerate the reduction of the general government debt ratio. (MIP relevant)   Limited progress   No progress in strengthening the fiscal framework  Limited progress in strengthening the public procurement framework  The compliance assessment with the Stability and Growth Pact will be included in Spring when final data for 2018 will be available CSR 2: Ensure that employment and social services have the capacity to provide effective support for jobseekers, including through better cooperation with employers. Foster transitions towards open-ended contracts. Improve family support and increase the effectiveness of income guarantee schemes, by addressing coverage gaps, simplifying the system of national schemes and reducing disparities in access conditions to regional ones. Reduce early school leaving and regional disparities in educational outcomes, in particular by better supporting students and teachers.  (MIP-relevant)  Limited progress  Some progress in reinforcing coordination between employment services, social services and employers  Some progress in fostering transition towards open-ended contracts  Limited progress in addressing fragmentation in income guarantee schemes and improving family support  Limited progress in addressing early school leaving and regional disparities in educational outcomes CSR 3: Increase public investment in research and innovation and systematically carry out evaluations of support policies in this area to ensure their effectiveness. Increase cooperation between education and businesses with a view to mitigating existing skills mismatches. Further the implementation of the Law on Market Unity by ensuring that, at all levels of government, rules governing access to and exercise of economic activities, in particular for services, are in line with principles of that Law and by improving cooperation between administrations.(MIP-relevant) Limited progress   Limited progress in enhancing the evaluation culture for innovation policies and no progress on the level of public investment for research and innovation.   Limited progress in increasing the labour market relevance of tertiary education  Limited progress in implementing the Law on Market Unity   
 
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

3.1. 

INTRODUCTION  

imbalances 

In  spring  2018,  Spain  was  identified  as  having 
macroeconomic 
(European 
Commission, 2018n). These imbalances related, in 
particular,  to  external  sustainability,  private  and 
public  debt  and  labour  market  adjustment,  in  the 
context  of  weak  productivity  growth.  The  2019 
Alert Mechanism Report concluded that a new in-
depth  review  should  be  undertaken  for  Spain  to 
assess 
the 
imbalances  (European  Commission,  2018b).  This 
chapter  summarises  the  findings  of  the  analyses 
the  macro-economic 
carried  out  as  part  of 
imbalances  procedure  (MIP)  in-depth  review  that 
is contained in various sections in this report. (9) 

the  persistence  or  unwinding  of 

3.2. 

IMBALANCES AND THEIR GRAVITY 

Spain’s  net  international  investment  position 
(NIIP) remains very negative. The large stock of 
net  external  liabilities  (-80.7 %  of  GDP  in  Q3-
2018)  leaves  the  country  exposed  to  adverse 
shocks or shifts in market confidence, which could 
result  in  a  tightening  of  credit  conditions  and 
international capital outflows. Favourable changes 
in  the  composition  of  external  liabilities  have 
somewhat mitigated the associated vulnerabilities.  

in  consolidated 

Private-sector  deleveraging  needs 
remain 
sizeable, despite a significant reduction of debt. 
Private  sector  debt, 
terms, 
amounted  to  134.6 %  of  GDP  in  Q3-2018  (of 
which  59.7 %  of  GDP  was  household  debt  and 
75.0 %  of  GDP  non-financial  corporate  debt). 
Despite  a  sharp  reduction,  debt  levels  are  above 
their 
fundamentals-based 
and 
benchmarks, for both households and non-financial 
corporations,  suggesting  that  deleveraging  needs 
persist  for  both  segments  (see  Section 4.2.3).  The 
still high level of private sector debt makes agents 
its 
vulnerable 
associated  financial  burden  may  still  constrain 
consumption and investment of some agents.  

rate  shocks,  and 

prudential 

interest 

to 

The  general  government  debt  ratio  is  expected 
to  have  slightly  further  decreased  in  2018,  but 
remains  high.  The  Commission  2018  autumn 
forecast  projects  a  decrease  by  1.2  percentage 
points  (pps.)  in  2018,  to  96.9 %  of  GDP.  Despite 
being  on  a  downward  trend,  the  high  stock  of 
public  debt  continues 
to  be  a  source  of 
vulnerability  for  the  economy  in  the  face  of 
potential changes in market sentiment. 

Unemployment  is  still  very  high,  despite  its 
rapid  decline.  Unemployment  stood  at  14.5 %  in 
Q4-2018,  after  falling  by  about  12  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 was still without a job in Q3-
2018.  Moreover,  the  share  of  temporary  contracts 
(26.9 % in Q3-2018) has not decreased during the 
last  year.  This  could  have  a  negative  impact  on 
potential growth, productivity, and social cohesion.  

The Spanish economy could provide significant 
spill-over  effects  to  the  rest  of  the  EU.  This 
stems  from  its  relatively  large  size  and  its  high 
degree  of  integration  with  other  Member  States, 
especially  those  with  which  Spain  has  significant 
trade  links  as  well  as  financial  and/or  banking 
linkages  (See  Table 3.1).  In  particular,  Portugal 
has  a  high  trade  exposure  to  Spain.  Box 3.1 
illustrates  how  structural  reforms  in  Spain  can 
boost  economic  growth  in  the  country,  with 
potential  spill-over  effects  on  other  Member 
States.  In  particular,  closing  half  of  the  gap  with 
the  best  performers  in  a  number  of  policy  areas 
could  boost  GDP  by  6 %  over  10  years,  with 
positive, albeit small, spill-over effects for the rest 
of the euro area. For Spain, the areas where the gap 
with  the  best  performers  are  larger  concern  the 
business  environment,  taxation,  skills  and  active 
labour  market  policies,  as  well  as  research  and 
innovation.  The  simulations  presented 
therein 
follow 
the  2019  Council 
spirit  of 
Recommendations for the euro area. 

the 

(9)  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 4.4.1). These sections are marked with a *. 

20 

 
 
                                                           
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.1: 

Outward spill-over heat map for Spain 

Note: cross-border figures for Spain, expressed as a % of the GDP of the partner country. The darkest shade of red 
corresponds to percentile 95 and the darkest shade of green to percentile 5. The percentiles were calculated for each 
variable based on the full available sample of bilateral exposures among EU countries. The blank spaces represent missing 
data. Data refer to: Imports - 2016, Imports (in value added) - 2014, Financial liabilities - 2015, Financial assets - 2015, Liabilities 
(to banks) - 2018-Q2, Bank Claims - 2018-Q2. 
Source: UN, OECD, WIOD, BIS and Commission services. 

to  reach  a  prudential  level  of  the  net  international 
investment  position  (NIIP),  and  also  the  more 
demanding  current  account  norm  (that  is,  the  one 
explained by fundamentals, at about 0.5 % of GDP 
in 2018) (Graph 3.1). (10) (11) 

(10)  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. 

(11)  The current account balance required to reach, in ten years, 
the prudential net international investment position (about -
60 % of GDP in 2027) is estimated to be around 0.2 % of 
GDP. 

3.3. 

EVOLUTION, PROSPECTS, AND POLICY 
RESPONSES 

External sustainability and competitiveness 

The current  account  surplus decreased in 2018 
as a consequence of both cyclical and transitory 
factors. After remaining relatively stable at almost 
2 %  of  GDP  in  2016  and  2017,  Spain’s  current 
account  surplus  weakened  in  2018,  to  slightly 
above 1.0 % of GDP. Spain's net lending capacity 
also  declined  to  1.5 %  of  GDP.  Cyclical  and 
transitory  factors,  such  as  the  increase  in  import 
prices,  in  particular  oil  prices,  the  slowdown  in 
Spain's  main  export  markets  and 
the  euro 
appreciation, have driven this decline. In addition, 
the composition of final demand has been skewed 
towards  components  with  large  import  content 
(such  as 
in  capital  goods  and 
consumption of durables or exports in sectors with 
vertically 
this 
background, both the energy and non-energy trade 
balance contributed to weaken the current account 
surplus in 2018. In particular, the non-energy trade 
balance registered a deficit for the first time since 
2011. In cyclically-adjusted terms, the decrease in 
the  current  account  surplus  has  been  limited 
(Graph 3.1). 

integrated  activities).  Against 

investment 

Structural factors are playing an important role 
in  preserving  the  external  trade  surplus.  A 
reduction in the import  elasticity  to final demand, 
as  well  as  the  increasing  internationalisation  of 
Spanish firms, suggest that a structural change has 
taken  place 
(see 
(European  Commission,  2018a).  Accordingly,  the 
cyclically  adjusted  current  account  balance 
(estimated at 1.5 % of GDP in 2018) has improved 
in recent years, and now exceeds the level required 

the  Spanish  economy 

in 

21 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUKImports0.72.11.40.20.42.40.80.50.61.71.40.42.52.11.20.50.82.93.32.11.36.71.12.61.10.60.9Imports (in value added)0.61.13.10.61.41.00.60.60.51.50.91.20.90.81.00.60.90.71.10.80.98.10.80.71.20.50.7Financial liabilities5.2100.41.310.33.90.72.6138.84.50.8275.50.40.1332.716.1292190.11.62.63.27.8Financial assets1.96.22.80.11.20.71.90.31.66.11.42.50.815.38.20.10.0237.01.430.91.126.21.80.80.52.15.3Liabilities (to banks)0.81.102.91.50.50.83.14.57.50.10.8Bank claims1.21.20.10.10.40.11.40.11.52.21.60.30.14.53.30019.48.91.98471.30.20.1115EU partner 
                                                           
 
 
 
3. Summary of the main findings from the MIP in-depth review 

international 

represents the net international investment position 
excluding  equity,  has  improved  faster  than  the 
overall  net 
investment  position, 
crossing the prudential threshold for the  first time 
in 2017 (falling to  -56 % of  GDP vs. a prudential 
threshold of -60 % of GDP). This is a reduction of 
15 pps of GDP since 2012, against a  decline of 6 
pps  of  GDP  of  the  net  international  investment 
position,  partly  reflecting  an  improvement  in  the 
net  foreign  direct  investment  (FDI)  position.  In 
addition,  most  of  the  external  debt  has  maturities 
of  one  year  or  more  (about  76 %  of  general 
government  and  private  sector  external  debt, 
excluding  intercompany  loans),  and  has  been 
increasing  in  recent  years,  reducing  risks.  In 
addition, a non-negligible part of the external debt 
from 
are  central  bank 
monetary 
eurosystem 
(Graph 3.3). 

liabilities  stemming 

operations 

the 

of 

Graph 3.2:  Analysis of the rate of change of net 

international investment position— Spain 

Source: Eurostat. 

Graph 3.1:  Current account and net international 

investment position 

(a) Current account required to stabilize the net 
international investment position at the  prudential 
benchmark by 2027 (lhs): 0.2 % of GDP 
(b) Fundamentally explained net international investment 
position benchmark: -33 % of GDP in 2017 
(c) Prudential net international investment position 
benchmark: -60% of GDP in 2017 
Source: Eurostat and own calculations. 

Persistent current account surpluses are slowly 
translating  into  a  narrowing  of  Spain’s  net 
debtor  international  investment  position.  In 
addition  to  high  nominal  GDP  growth,  continued 
external  surpluses  have  driven  a  slow  but  steady 
narrowing  of  Spain's  negative  net  international 
investment  position  (Graph 3.2)  (12).  Negative 
valuation effects, mainly due to the appreciation of 
the euro, prevented a larger improvement in 2017 
and 2018. Continued current account surpluses and 
high nominal GDP growth projected until 2020 are 
expected  to  result  in  further  improvements  in  the 
net international investment position. 

liabilities  has  been 

The  composition  of  Spain’s  external  liabilities 
helps  to  mitigate  some  of  the  vulnerabilities. 
Since 2013, the proportion of equity instruments in 
total  external 
increasing, 
although  from  a  very  low  level.  Equity  does  not 
carry 
risks  as  debt  for  external 
sustainability, as, contrary to debt, its remuneration 
(e.g.  dividend  payments)  can  be  adjusted  during 
economic downturns. Against this background, the 
net  international  investment  position  excluding 
(NENDI),  which 
non-defaultable 

instruments 

the  same 

(12)  The  Target  2  balances  mainly  reflect  the  impact  of  the 

Public Sector Purchase Programme (PSPP). 

22 

(a)(b)(c)-100-80-60-40-20020-10-8-6-4-2024010305070911131517% of GDP% of GDPCurrent account (lhs)Cyclically adjusted current account(lhs)Net international investment position (rhs)-15-10-505101509Q410Q411Q412Q413Q414Q415Q416Q417Q418Q4Change in pp. of GDP (y-o-y)Valuation changesNet transaction effect (rest FA bal.)Investment income effectNominal growth effectChange in NIIP (y-o-y) 
 
                                                           
 
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.2: 

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 2027, 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 2018-20 (0.2 % of GDP). See also European Commission, 2015, 'Refining the methodology for 
NIIP-based current account benchmarks', LIME Working Group 17 Jun 2015. 
Source: Owns calculations. 

international 

liabilities.  While 

Sustained  current  account  surpluses  would  be 
needed  for  Spain  to  decisively  reduce  its  still 
the  current 
large  external 
account surpluses recorded since 2013 have put the 
net 
investment  position  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  (see Graph 3.1) (13).  Even  under  a 
relatively  benign  growth  scenario,  Spain  would 
need  to  maintain  current  account  surpluses  over  a 
long  period  of  time  in  order  to  bring  down  the 
large  net 
investment  position 
decisively (Table 3.2).  

international 

investment  position 

(13)  The  country-specific  prudential  threshold  for  the  net 
international 
is  derived  from  a 
univariate  signalling  approach  that  identifies  at  which  net 
international investment position level an external crisis is 
likely  to  begin.  The  net  international  investment  position 
level  explained  by  fundamentals  represents 
the  net 
international  investment  position  that  would  result  if  a 
country  had  run 
line  with 
fundamentals  since  1995.  See  Turrini,  A,  and  Zeugner,  S. 
'Benchmarks  for  net  international  investment 
(2018), 
positions',  European  Commission  Discussion  Paper, 
forthcoming.  

its  current  account 

in 

Graph 3.3:  Gross external debt by sector-type of financial 

assets 

(1) LT: Long-Term, ST: Short-Term 
Source: Bank of Spain 

Private indebtedness and deleveraging 

has 

advanced, 

Despite the growth in new credit, private sector 
deleveraging 
reducing 
vulnerabilities. By Q3-2018, private sector debt - 
in consolidated terms - had been reduced by about 
67.9 pps. of GDP since its peak in 2010. Most of 
this reduction is due to a decline in corporate debt 
(about  42.6  pps.  of  GDP),  but  progress 
in 
household debt reduction (over 25.3 pps. of GDP) 
has also been significant. The deleveraging process 
has  reduced  the  exposure  of  both  sectors  to 
changes in interest rates (14). The financial position 

(14)  According  to  Bank  of  Spain  estimates,  the  decline  in  the 
stock of household loans, along with the growing trend of 
their  deposits,  has  contributed  to  substantially  moderating 
the  negative  income  effect  associated  with  interest  rate 
rises.  This  is  also  the  case  of  firms,  although,  they  are 

23 

0204060801001201401601800203040506070809101112131415161718% of GDPBank of SpainPublic sector STPublic sector LTPrivate sector STPrivate sector LTFDITotal external debtLow nominal GDP growthBaseline scenario High nominal GDP growth(2.1% avge. 2018-27)(3.1% avge. 2018-27)(4.1% avge. 2018-27)NIIP Stabilisation-2.0-2.7-3.6NIIP at -75% of GDP-1.0-1.7-2.5NIIP at -60% of GDP0.70.0-0.7NIIP at -33% of GDP3.63.12.5 
                                                           
 
                                                           
 
 
 
3. Summary of the main findings from the MIP in-depth review 

construction  has  been  increasing  since  the  last 
quarter  of  2015,  but  remains  below  pre-crisis 
levels  (5 %  of  GDP  in  2017,  compared  to  about 
12 % of GDP in 2006).  

The  insolvency  reforms  over  recent  years  have 
facilitated private debt reduction. In a context of 
strong  economic  growth  and  easing  access  to 
finance,  the  number  of  corporate  insolvencies 
decreased  by  2.6 %  in  annual  terms  in  the  first 
three  quarters  of  2018  (by  0.8 %  in  2017).  The 
proportion  of  insolvency  proceedings  that  ends  in 
an  agreement  between  creditors  and  debtors 
increased  in  2017,  compared  to  the  previous 
insolvency  framework  before  the  2014  and  2015 
reforms (see Section 4.2.2).  

Public debt 

The reduction of public sector  debt  is expected 
to  continue,  but  at  a  moderate  pace.  After 
declining  by  2.3 %  of  GDP  between  2014  and 
2017, it is expected to narrow slightly faster, by a 
further  2.7  pps.,  until  2020,  helped  by  still  strong 
nominal  GDP  growth.  For  the  first  time  since 
2007,  debt  reduction  is  also  expected  to  be 
underpinned  by  a  primary  surplus  as  from  2019. 
While interest expenditure remains on a declining 
in  financing 
path  as  previous 
conditions  filter  through  to  lower  debt  servicing 
costs,  debt-increasing  stock-flow  adjustments  are 
preventing a slightly faster debt reduction in 2019 
and 2020. While there appears to be no immediate 
risk  of  fiscal  stress,  risks  to  fiscal  sustainability 
remain significant in the medium to long term (see 
Section 4.1.1). 

improvements 

Unemployment 

Unemployment is set to continue falling, despite 
decelerating job creation. Employment growth is 
expected  to  slow  down  in  2019  and  2020,  as  a 
consequence of the  slowdown in  final demand, as 
well  as  the  expected  dampening  impact  of  the 
increase  in the minimum  wage for 2019. Still, the 
unemployment  rate  is  set  to  continue  falling,  to 
13.3 %  in  2020,  which  is  still  well  above  the  EU 
average.  Labour  market  segmentation  has  not 
declined despite the increasing share of permanent 
contracts  among  new jobs. A high level of labour 
market  segmentation,  long-term  unemployment, 
and  population  ageing  remain  challenges  for 
higher  productivity  and  potential  growth  (see 

of  Spanish  households  has  strengthened  mainly 
thanks  to  improvements  in  the  labour  market. 
Furthermore,  the  financial  burden  of  household 
debt  has  been  reduced  by  the  prevailing  low 
interest rates.  

for 

needs 

remain 

Deleveraging 
both 
corporations  and  households,  but  the  stock  of 
loans  to  households  has  started  to  increase 
again. According to prudential and  fundamentals-
based  benchmarks,  both  household  and  non-
financial  corporations'  debt  remains  high  and 
deleveraging needs persist (see Section 4.2.3). The 
continued reduction of private sector debt is driven 
by non-financial corporations (NFCs), whereas the 
stock  of  total  household  debt  stabilized  in  2018 
after  being  on  a  downward  trend  since  2010. 
Significant growth in new credit to finance durable 
consumer  spending,  as  well  as  growth  in  lending 
for  house  purchases  and  a  reduction  in  the 
repayment  of  mortgages  (due  to  a  reduction  in 
housing  debt)  explain  this  change  of  trend.  Even 
though  consumer  credit  has  contributed  to  the 
economic  recovery  in  recent  years  by  supporting 
domestic  demand,  its  rapid  increase  increases 
agents’  vulnerability to adverse shocks, especially 
if  it  goes  to  the  most  vulnerable  households.  On 
the  corporate  side,  the  debt  reduction  process  has 
continued  despite  new  credit  flowing  towards  the 
less 
firms, 
indebted  and  most  productive 
supporting 
investment  (European  Commission 
2018a). 

Amid  rising  house  prices,  the  construction 
sector  has  started  to  grow,  but  houses  are  still 
undervalued  for  the  country  as  a  whole.  House 
prices  have  risen  for  almost  five  years  in  a  row, 
although  there  is  a  high  degree  of  heterogeneity 
across  regions,  partly  reflecting  a  still  large  stock 
of  unsold  houses  in  some  areas  and  a  buoyant 
rental housing market in others. On average for the 
whole  of  Spain,  house  prices  remain  below  pre-
crisis  levels,  and  their  recovery  does  not  seem  to 
imply  potentially  harmful  dynamics,  but  price 
developments  in  some  regions  deserve  attention. 
According  to  standard  price  valuation  indicators, 
overall house prices are still undervalued in Spain, 
although  some  indicators  suggest  this  gap  is 
closing (see Section 4.2). Investment in residential 

comparatively  more  affected  than  households  by  these 
shocks owing to their higher net debt (see Bank of Spain, 
Economic Bulletin 2/2018). 

24 

 
                                                                                   
3. Summary of the main findings from the MIP in-depth review 

recent increase in the minimum wage to EUR 900 
would  generate  a  negative  employment  effect  of 
up  to  0.8  %  of  total  employment  (some  125  000 
net jobs). This negative effect would be greater for 
certain groups, such as women, young people, low-
skilled  workers  and  those  on  temporary  contracts 
(see Section 4.3.1). 

3.4.  OVERALL ASSESSMENT 

to 

has 

needs 

further, 

continued 

The reduction of macroeconomic imbalances in 
but 
progressed 
Spain 
sector  debt 
vulnerabilities  remain.  Private 
reduction  has 
advance,  but 
deleveraging 
persist.  Non-financial 
corporation  debt  has  continued  to  decline,  while 
the  outstanding  level  of  households'  loans  has 
increased  slightly  again  after  years  of  decline. 
Public  sector  debt  has  been  slightly  reduced,  a 
process that is expected to accelerate somewhat as 
government deficits are forecast to narrow further. 
Despite  a  weakening  of  the  external  surplus  in 
2018, largely due to cyclical and transitory factors, 
structural  factors  continue  supporting  the  growth 
of  exports  and 
imports. 
limiting 
Nevertheless, in order to bring down decisively its 
large  stock  of  external  liabilities,  Spain  will  have 
to  record  current  account  surpluses  over  an 
extended  period  of  time.  Unemployment  is  set  to 
continue  falling,  despite  a  deceleration  in  job 
creation.  However,  reducing  long-term  and  youth 
unemployment,  along  with  lowering  the  share  of 
employees  in  temporary  contracts,  is  critical  to 
raise the growth potential of the Spanish economy. 

that  of 

Section 4.3). 

After  years  of  restraint,  wages  are  set  to 
increase,  but  cost-competitiveness  gains  will 
continue.  Negotiated  wage  increases  have  been 
gradually  recovering  in  recent  years,  reaching 
1.7 %  in  October  2018.  However,  strong  job 
creation  has  resulted  in  a  negative  wage  drift, 
leading  to  very  modest  increases  in  nominal 
aggregate  wage  growth,  or  even  negative  in  real 
terms  in  2016-2018.  This  contained  nominal  unit 
labour  costs  (ULC)  increases  despite  the  low 
productivity  growth  during  the  period.  Nominal 
wage  growth  is  expected  to  peak  in  2019  as  a 
result  of  the  increase  of  the  minimum  wage,  and 
then  to  moderate,  but  remain  above  inflation  in 
2020.  As  labour  productivity  is  forecast  to  grow 
only moderately over the forecast horizon, this will 
lead  to  increases  in  nominal  unit  labour  costs. 
However,  growth  in  nominal  unit  labour  costs  is 
expected to remain below the euro area, except for 
2019, 
cost 
further 
implying 
competitiveness.  

gains 

in 

The  increase  in  the  minimum  wage  could 
reduce in-work poverty, but could also hurt the 
employment prospects of young  people and  the 
low-skilled.  Spain  has 
implemented  a  steep 
increase  in  the  minimum  wage  in  2019  (of 
22.3 %), above expected inflation and productivity 
growth. The expected impact of the increase in the 
minimum  wage  on  employment  may  vary 
significantly across regions, sectors, and categories 
of  workers,  depending  on  the  coverage.  Existing 
simulations  specific  to  Spain  estimate  that  the 

25 

 
3. Summary of the main findings from the MIP in-depth review 

Box 3.1: Outward spill-overs 

Structural reforms in Spain could have spill-over effects on other countries due to the large size of the 
Spanish economy. While the demand effect (higher export demand for foreign products) leads to positive 
spillovers,  reforms  typically  also  improve  a  country’s  competitiveness  and  this  can  be  at  the  (relative) 
expense of other countries. Whether the net effect is positive or negative depends on the relative strength of 
these two opposing channels and is likely to depend on the specific types of reforms. 

In a  model simulation exercise (1), the impact of a comprehensive set of reforms is quantified for all 
EU  Member  States  in  a  harmonised  way  (Varga  and  in  ’t  Veld,  2014).  For  a  large  set  of  structural 
indicators the benchmark is defined as the average of the three best performing  countries, and then in the 
simulation these gaps are closed by half for all indicators together, for each country separately. An update of 
this exercise for Spain is shown in the table below, based on more recent indicators (but not capturing the 
reform  measures  introduced  most  recently).  As  the  magnitude  of  the  reform  ‘shocks’  simulated  here  are 
based on a harmonized benchmarking exercise, they do not exactly correspond to past European Semester 
Country-specific recommendations, but they illustrate the potential impact  that structural reforms can have 
on Member States’ economies and their spill-overs. 

The simulation for Spain shows that there may be a small but positive net spill-over to the rest of the 
euro area from structural reforms. The simulated reforms cover all areas: product market regulation and 
entry costs, labour market participation, taxation structure and R&D subsidies. For Spain, the largest ‘reform 
gaps’ identified are in the tax wedge (as captured by the relative share of labour tax revenues compared to 
consumption  tax  revenues)  and  product  market  regulation  (services  sector  markups  and  entry  costs).  All 
together, this ambitious reform package can boost GDP by 6 % after 10 years, and 9 ¾ % after 20 years. The 
reforms raise competitiveness and boost exports, but imports also increase as a result of higher demand. As 
the terms of trade fall by about 3 % after 10 years, the trade balance to GDP ratio actually falls slightly by 
0.3 pps. The net spillover to the rest of the EA is small but positive, and total EA GDP increases by 0.3 % 
after 10 years. 

Table 1. Spillover effects of structural reforms – Spain closing half of the structural reform gaps 

Spain 

GDP 

REER 

1 

2 

3 

4 

5 

10 

20 

0.60 

1.03 

1.61 

2.21 

2.80 

5.84 

9.88 

-1.10 

-1.53 

-1.26 

-0.69 

0.00 

2.72 

6.52 

Trade balance     (% GDP) 

-0.71 

-1.13 

-1.08 

-0.90 

-0.71 

-0.33 

-0.13 

Rest of EA GDP 

-0.02 

-0.01 

0.01 

0.02 

0.02 

0.02 

0.01 

EA GDP 

0.01 

0.05 

0.10 

0.14 

0.18 

0.34 

0.56 

Note: increase in REER is a depreciation.  

(1)  Detailed  information  on  the  QUEST  model  and  applications  is  available  at:  https://ec.europa.eu/info/business-

economy-euro/economic-and-fiscal-policy-coordination/economic-research/macroeconomic-models_en. 

26 

 
 
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.3: 

MIP matrix 

(Continued on the next page) 

27 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) External position Spain has a high, but declining, stock of net external liabilities, amounting to -80.7 % of GDP in Q3-2018, mainly composed of debt instruments. By institutional sector, the external debt of mainly the non-financial private sector, but also the public sector (mostly long-term securities), has declined. The current account surplus is expected to decline from 1.9 % of GDP in 2017 to 1.2 % in 2018, and remain  broadly stable around 1.0 % of GDP until 2020 This deterioration is a consequence of both cyclical and transitory factors, such as the increase in oil prices, the appreciation of the euro, as well as weaker than expected global trade. However, a structural improvement in Spain's trade performance, as confirmed by the increase in the number of regular exporters, and as well as a reduction in the elasticity of imports to final demand, play a role in preserving Spain's external surplus. This is corroborated by the cyclically-adjusted current account balance, which has been in surplus since 2016.  The negative NIIP, which improved in 2017 by 3.2 pps, to -80.7 % of GDP, also helped by high nominal growth. The appreciation of the euro resulted into negative valuation effects, preventing an even greater improvement of the NIIP in 2018. Continued current account surpluses and high nominal GDP growth projected until 2020 are expected to facilitate further improvements of the NIIP. Restrained wage growth has largely contributed to restoring cost competitiveness.  After years of moderation, nominal wage growth has resumed, and is expected to reach 1 % in 2018. Wage growth is then expected to peak in 2019 at 2.4 %, under the impact of the increase of the minimum wage, and moderate but still grow at a rate above inflation in 2020. As labour productivity is forecast to grow moderately over 2018-2020, this will lead to increases in nominal unit labour costs. However, ULC are expected to grow above the euro area only in 2019, implying cost-competitiveness gains in the rest of the period.  Measures to raise non-cost competitiveness (through investment in research and innovation, as well as improving labour skills) have been modest so far (see Sections 4.3 and 4.4). Public debt Spain has a high level of public debt, which was estimated at 96.9 % of GDP in 2018. While Spain does not appear to face fiscal sustainability risks in the short run, fiscal sustainability risks in the medium term are estimated to be high, primarily due to the initial level of government debt and budgetary position. (see Section 4.1.1). Despite strong nominal GDP growth in recent years, the debt ratio has been declining relatively slowly (from a peak of 100.4 % in 2014 to 96.9 % in 2018), as a result of still high headline deficits.  While the deficit is forecast to continue narrowing in 2019 and 2020 (to 2.1 % and 1.9 % of GDP, respectively) and nominal GDP growth to remain relatively strong, the debt ratio is forecast to decrease only modestly to 95.4 % of GDP in 2020, as a result of debt-increasing stock-flow adjustments. The Commission concluded that the 2019 Draft Budgetary Plan of Spain is "at risk of non-compliance" with the provisions of the Stability and Growth Pact. Although Spain is expected to correct its excessive deficit in a durable manner in 2018, the Commission projects a risk of significant deviation from the required adjustment path to the medium-term budgetary objective. Moreover, Spain is not expected to make sufficient progress towards compliance with the debt reduction benchmark in 2019. Private debt The total stock of private non-financial sector debt stood at 136.1 % of GDP (in consolidated terms) in Q2-2018. Of this amount, 60.8 % of GDP corresponds to household debt, while corporate debt now stands at 75.4 % of GDP in consolidated terms (94.9 % non-consolidated). The deleveraging process is taking place at the same time as new credit towards households and companies as well as issuance of debt securities by NFCs are increasing. Real GDP growth has thus become the main driver of private sector deleveraging. The debt stock of the private sector has been reduced by about 66.5 pps of GDP since its peak. Most of it is attributable to non-financial corporations (about 42.3 pps. of GDP), but progress in households' deleveraging (by about 24.1 pps.) was also remarkable.  In Q2-2018, the pace of debt reduction slowed down for NFCs, while the total stock of debt increased for households for the first time since 2010. Significant growth in new credit for durable consumer spending, as well as the slowdown in the reduction in the outstanding volume of mortgage loans, explain the modest increase in household debt. The reforms of the insolvency framework in 2014/2015 have facilitated debt restructuring and made insolvencies less onerous.   
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

(*)  first column summarises ‘gravity’ issues, aiming to put the imbalances in order of magnitude. The second column reports 
findings concerning the ‘evolution and prospects’ of these imbalances. The third column reports recent and planned 
measures. Findings are reported for each source of imbalance and adjustment issue. The final three paragraphs summarise 
the overall issues, in terms of their gravity, developments and prospects and the policy response to them. 
Source: European Commission. 

28 

  The projected recovery of a historically low savings' rate could help to resume the deleveraging process going forward. Banks have restructured their activity and cleaned up their balance sheets, and the non-performing loans ratio for business in Spain has continued to decrease, from 8.4 % in 2017-Q2, to 6.4 in 2018Q-2. The NPL for consolidated business of Spanish bank (4.2 % in June 2018) is close to the EU average.  Adjustment issues  Unemployment  Total employment is still almost 10 % below its pre-crisis peak. The unemployment rate stood at 14.5 % in Q4-2018, of which 39.7% was long-term unemployment, and youth unemployment stood at 33.1 %. Both rates are among the highest in the EU (see Section 3.3). Persistently high unemployment hampers the adjustment process.  Unemployment has been declining rapidly, but it remains very high, especially for youth and the long-term unemployed. The unemployment rate is expected to fall to about 13 % by 2020.  High levels of labour market segmentation (permanent vs. temporary employment) persist.   The government has proposed to increase the minimum wage by 22.3 % in 2019. Given the large magnitude of the increase, and the high share of workers potentially affected, the potential impact of this increase should be analysed further and its implementation should be carefully monitored.  Incentives to reduce labour market segmentation have not had substantial impact so far, but the government is implementing additional measures, such as the Plan for Decent Work 2018-2020 to fight against abuse of temporary contracts through more targeted labour inspections. Conclusions from IDR analysis  Spain is characterised by a combination of still large, but declining, stock of external and internal debt, both public and private. This leaves the country exposed to adverse shocks or shifts in market confidence, which translate into a tightening of credit conditions on the international markets, which would have harmful implications for the real economy, especially given the still high level of unemployment.  The current account balance surplus weakened in 2018, reflecting the negative impact of transitory factors, while structural factors continued being supportive.  The external surplus continued supporting a slow decline in net external liabilities. Progress continues to be make on NFCs debt reduction, while an interruption in households deleveraging was observed in the second half of 2018. Public debt has decreased slightly, with deficits forecast to narrow in the future. Unemployment remains very high, despite a substantial reduction. Policy progress regarding the implementation of recommendations has been limited in fields such as the fiscal framework, removing unnecessary regulatory burden on firms, reforming regulated professions, addressing the segmentation of the labour market.   
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  DEBT SUSTAINABILITY AND FISCAL RISKS* 

Although  slowly  decreasing,  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 
percentage points above its low point of 2007. The 
Commission  2018  autumn  forecast  projects  that 
the debt ratio will decrease from 96.9 % of GDP in 
2018  to  95.4 %  of  GDP  in  2020.  This  decrease 
follows  from  both  favourable  interest  rate-growth 
rate  differentials  and  –  as  from  2019  –  primary 
surpluses  more  than  offsetting  debt-increasing 
stock-flow  adjustments.  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  41 %  in  2017  relative  to 
around  20 %  in  2010,  the  year  in  which  private 
debt peaked (See Graph 4.2.4).  

in  recent  years.  As 

life  of  outstanding  debt  has 
The  average 
increased 
the  Spanish 
Treasury took advantage of the lower interest rates 
to  extend  maturities,  average  life  of  outstanding 
debt  has  increased  to  slightly  below  7.5  years. 
While the cost at issuance has risen slightly from a 
low  of  0.61 %  in  2016  to  0.65 %  by  15  January 
2019,  it  remains  significantly  below  the  cost  of 
debt  outstanding,  which  stood  at  2.39 %  on  that 
same  date  (in  2011,  both  stood  at  around  4.0 %). 
This  implies  that  there  is  still  some  margin  to 
further reduce the average cost of debt in the near 
future.  

Spain  does  not  appear  to  face  immediate  risks 
of  ʻfiscal  stressʼ,  but  sustainability  risks  are 
high  in  the  medium  and  long  term  (15).  The 
value  of  the  early-detection  indicator  of  fiscal 
stress,  the  S0  indicator,  is  below  its  critical 
threshold. However, some fiscal variables point to 
possible  short-term  challenges,  especially 
if 
financial  markets’  perceptions  were  to  rapidly 
change.  Among  the  variables  with  a  value  above 
their  critical  threshold  are  the  gross  financing 
needs,  the  cyclically-adjusted  deficit  and  net 
government  debt.  Financial  markets’  perceptions 
of  Spain’s  sovereign  risk  seem  to  have  improved 
over  the  last  year,  with  upgrades  from  all  major 
rating agencies in the first half of 2018. Since then, 
they have remained ‘A- stable’ or equivalent. The 
10-year sovereign yield spread against the 10-year 
German  bund  is  only  slightly  higher  than  a  year 
ago.  According  to  the  Commission  2018  autumn 
forecast, Spain is still forecast to have a structural 
government deficit of 3.1% in both 2019 and 2020, 
reflecting  a  relatively  low  level  of  taxation  in 
relation  to  expenditure.    This  is  still  some  way 
from  the  medium-term  objective  of  having  a  zero 
structural balance.   

see  European  Commission 

(15)  For  details  on  the  European  Commission's  assessment  of 
fiscal  sustainability  risks  in  the  short,  medium  and  long 
‘Fiscal 
term, 
Sustainability  Report  2018’  Directorate-General 
for 
Economic  and  Financial  Affairs,  European  Economy, 
Institutional Paper 094/2019. In this year's Country Report, 
long-term  sustainability  risks  are  assessed  by  the  S2 
indicator  in  conjunction  with  the  debt  sustainability 
assessment. See also Annex B for an overview. 

(2019), 

29 

 
 
                                                           
4.1. Public finances and taxation 

Box 4.1.1: Long-term sustainability implications of changes to the pension system and to 
health care policies 

The  adoption  of  the  2018  budget  implied  a  departure  from  two  key  elements  of  the  2013  pension 
reform.  These consist of,  first,  a temporary suspension of the  annual revaluation mechanism during 2018 
and  2019  and,  second,  a  postponement  from  2019  to  2023  of  the  entry  into  force  of  the  so  called 
sustainability  factor,  a  mechanism  by  which  the  initial  pension  level  is  adjusted  to  changes  in  life 
expectancy. Regarding the former, the 2018 Budget Law contained a pension revaluation of 1.6 % in 2018 
(compared  to  0.25 %  implied  by  the  Index  for  Pension  Revaluation  (IPR)).  In  addition,  the  Government 
agreed to raise the minimum pension by 3 % in 2018 and to raise survivor pensions in both 2018 and 2019. 
The latter was already foreseen in the 2011 pension reform, but had been put on hold during the crisis years. 
The  2019  Draft  Budgetary  Plan  submitted  in  October  2018  also  announced  a  further  top-up  of  the  2018 
pensions to compensate for inflation being expected to overshoot 1.6 % in 2018. It also envisaged a further 
hike  of  minimum  pensions  of  3  %  in  2019  and  confirmed  the  intention  to  raise  pensions  in  2019  by  the 
Consumer  Price  Index  (CPI).  All  these  measures  were  incorporated  into  the  Commission  2018  autumn 
forecast. To ensure that they took effect on 1 January 2019 despite the absence of an adopted 2019  Budget 
Law,  these  changes  were  implemented  through  a  Royal  Decree  Law  adopted  by  the  Government  in 
December 2018.  

Graph 4.1.1.1: 

Evolution of pension expenditure under the 2018 Ageing Report baseline and alternative 

scenarios 

(1) The delayed implementation of the sustainability factor is not reflected in any of these projection scenarios. In the 
three scenarios all underlying assumptions are those of the Ageing Report 2018 (). 
(2) In the relinking to CPI scenario, old age and early pensions in payment are indexed to CPI instead of the Index for 
Pension Revaluation (IRP) as of 2018 in “structural terms”, i.e. without any time limit. Concretely, this entails a much 
higher indexation of pensions, by 2 % per year instead of 0.25 % per year over almost the entire projection period, 
until 2047. 
Source: Ageing Report 2018 (European Commission, 2018d) and Commission services calculations 

Taking  all  these  short-term  legislated  measures  into  account,  total  pension  expenditure  would  be 
considerably higher compared with the 2018 Ageing Report baseline scenario, which reflects the pre-
reform-reversal  situation.  In  particular,  adjusting  pensions  to  the  Consumer  Price  Index  instead  of  the 
Index  for  Pension  Revaluation    in  2018-19  could  lead  to  a  cumulated  increase  in  pension  expenditure  of 
0.2 % of GDP by 2019 compared with the baseline scenario.  

The permanent full relinking of pensions to inflation that is currently being discussed would lead to a 

30 

8101214161820202020302050BaselineRelinking to CPIHigh net migration 
 
4.1. Public finances and taxation 

significant  increase  in  pension  expenditure  over  the  long  term,  unless  compensating  measures  are 
undertaken.  In  September  2018,  the  parliamentary  committee  dealing  with  pension  issues,  the  so-called 
Toledo Pact Committee, issued a recommendation to link pensions to inflation. This recommendation, which 
enjoys  broad  political  support,  is  not  binding.  The  recent  Royal  Decree  Law  requires  that  the  indexing  of 
pensions be implemented in such a way so as to ensure the social and financial sustainability of the system. 
According to preliminary projections by the Commission services, a straight relinking to the Consumer Price 
Index rather than the Index for Pension Revaluation would lead pension expenditure to be about 4 % of GDP 
higher by 2050 compared to the baseline scenario (See Graph 4.1.1.1).This is close to the projections made 
by other institutions, such as Bank of Spain, the IMF and the think tank FEDEA (2018). The independent 
fiscal authority, AIReF, estimates the impact to be less (2% of GDP) based on different assumptions.  

The  sensitivity  of  the  pension  projections  to  changes  in  the  assumptions  regarding  net  migration  is 
rather  limited.  The  national  statistical  office  (INE)  has  recently  updated  its  demographic  projections  and 
AIReF has published a set of demographic forecasts  for the first time. Both include net migration inflows 
that are higher than those included in the Commission 2018 Ageing Report. To gauge the importance of the 
demographic  assumptions  on  the  pension  projections,  the  2018  Ageing  Report  includes  a  high-migration 
sensitivity  scenario  (See  Graph  4.1.1.1).  It  assumes  that  net  migration  flows  are  33  %  higher  than  in  the 
baseline scenario throughout the projection period. While this scenario is expected to lead to a reduction in 
the weight of pension expenditure by about 0.5 % of GDP by 2050 as employment grows  faster, by 2070 
this  reduction  should  have  narrowed  to  0.2  %  of  GDP,  as  migrants  start  drawing  a  pension  after  their 
working career. 

As  concerns  adequacy,  the  current  net  theoretical  replacement  rate  (measured  as  the  first  pension 
benefit  relative  to  the  last  wage  before  retirement,  on  the  assumption  of  a  40-year  career,  average 
earnings and retirement at the age of 65) of Spanish public pensions are among the highest in the EU 
(96.8 %).  In  2017,  people  aged  65  and  over  faced  a  much  lower  risk  of  poverty  than  other  age  groups, 
notably children (14.8% against 28.3 %). According to the 2018 Pension Adequacy Report, the  theoretical 
replacement rate in Spain is set to decline in the long run (86.5 % in 2056), but would remain above the EU 
average  also  in  a  scenario  where  the  2013  reform  is  left  intact.  Further  improving  the  duration  and 
completeness of working careers would improve the adequacy and sustainability of future pensions. 

Also in the health care area, the Spanish authorities have recently implemented a new measure. In July 
2018,  the  Spanish  Government  adopted  a  Royal  Decree-Law  extending  health  care  coverage  to 
undocumented and illegal immigrants (See Section 4.3.3). This Decree-Law was validated by Parliament in 
September 2018, establishing a legal right to health care.  

Spain faces high fiscal sustainability risks in the 
medium  term.  This  conclusion  stems  from  both 
the  sustainability  gap  indicator  (S1)  and  from  a 
debt  sustainability  analysis  perspective.  The 
former  indicates  that  Spain's  structural  primary 
balance  would  need  to  improve  by  5.2 %  of  GDP 
in  cumulative  terms  over  the  five-year  period  to 
2025  relative  to  the  baseline  ‘no-fiscal  policy 
change’ scenario to bring the debt-to-GDP ratio to 
the  reference  value  of  60 %  by  2033.  This  would 
require an ambitious structural primary balance by 
European  standards  (16).  About  half  of  the  very 
significant  S1  value  is  due  to  the  distance  of  the 
debt ratio from the 60 % reference value and, to a 
somewhat  lesser  extent,  the  unfavourable  initial 

(16)  Only 10 % of the structural primary balances  recorded for 
the  EU  countries  over  1980-2018  were  greater  than  this 
value. 

budgetary position, but only to a limited extent the 
projected  age-related  public  spending.  However, 
these  numbers  are  based  on  the  same  policy 
assumptions  as  those  underlying  the  2018  Ageing 
Report (European Commission, 2018d). The recent 
policy debate on pensions indicates that changes to 
the  mechanism  by  which  pensions  are  revalued 
may  undergo  changes  in  the  near  future.  In 
particular,  a  relinking  of  pensions  to  inflation 
would  lead  to  a  significant  increase  in  pension 
expenditure  in  the  medium  to  long  term  (See 
Box 4.1.1). Debt sustainability analysis shows that 
under normal economic conditions and assuming a 
constant  structural  primary  balance  after  the  last 
Commission  forecast  year  (2020),  the  Spanish 
general government debt is expected to reach more 
than 107 % of GDP by 2029 (last projection year). 
This projection is driven by a gradual worsening of 

31 

 
                                                           
4.1. Public finances and taxation 

the primary balance in the 2020-2024 period being 
compounded  by  an  unfavourable  and  increasing 
interest rate-growth rate differential in the last part 
of  the  next  decade.  The  analysis  also  shows  that 
the  level  of  the  debt  ratio  is  highly  sensitive  to 
shocks (see Box 4.1.2).  

In the long term, Spain is deemed at high fiscal 
sustainability  risk.  This  conclusion  stems  from 
combining  the  sustainability  gap  indicator  (S2) 
with  a  debt  sustainability  analysis  perspective 
described above. The former shows a gap of 2.3% 
of  GDP  that  needs  to  be  closed  to  stabilise  debt 
over  the  long-term.  The  gap  is  mainly  due  the 
unfavourable  initial  budgetary  position,  but  to  a 
limited  extent  also  to  the  projected  ageing  costs. 
As  was  the  case  for  the  S1  indicator,  the  S2 
indicator  is  also  based  on  assumptions  regarding 
pension expenditure that may prove too low, if the 
announced  reversals  of  some  of  the  pension 
reforms  materialises.  Under  the  more  adverse 
Ageing  Working  Group  risk  scenario  (whereby 
healthcare and long-term care costs  would exceed 
those  expected  from  purely  demographic  factors 
as 
due 
technological changes and catching-up effects), the 
S2 indicator would double, to 4.4 % of GDP. 

to  non-demographic  drivers 

such 

4.1.2.  FISCAL FRAMEWORK 

strategy 

implementation  of 

Some  steps  have  been  taken  to  improve  public 
procurement and assess the efficiency of public 
spending.  The 
the  new 
governance  structure  for  public  procurement  in 
Spain  is  ongoing,  but  the  elaboration  of  the 
procurement 
still  pending.  The 
is 
effectiveness of the new law will crucially depend 
on  the  degree  of  ownership  at  all  levels  of 
government (see Section 4.4.4). With support from 
the  European  Commission, 
the  expenditure 
reviews,  carried  out  by  the  Spanish  Independent 
Authority  for  Fiscal  Responsibility  (AIReF)  in 
2018 and approved for 2019, have the potential to 

to 

in 

the 

the 

role  of 
for  Fiscal  Responsibility 

the  efficiency  and 
lead 
improvements 
effectiveness  of  public  spending 
in  selected 
areas (17).  Some  provisions  adopted  through  a 
Royal Decree in March 2018 further enhanced the 
Independent 
functions  and 
(AIReF). 
Authority 
Spain’s 
further 
strengthened,  among  other  things,  by  pursuing  a 
more  automatic  activation  of  measures  to  prevent 
and  correct  deviations  from  fiscal  targets  at  the 
local  level  and  by  enhancing  the  contribution  of 
the domestic spending rule to the sustainability of 
public spending (see European Commission 2018a, 
p.28-29, and European Commission 2018c).   

framework 

can  be 

fiscal 

4.1.3.  TAXATION 

Spain  has  a  low  tax-to-GDP  ratio  compared  to 
other  EU  Member  States.  In  2017,  its  tax 
revenues  amounted  to  33.8 %  of  GDP,  compared 
with  EU  and  euro  area  averages  of,  respectively, 
39.0 %  and  40.2 %.  The  share  of  consumption 
taxes is very low, at 9.4 % of GDP, also reflected 
in a relatively low implicit tax rate on consumption 
of  15.9 %,  below  the  EU/euro  area  average  of 
20.7 %  and  20.6 %.  At  16.3 %  of  GDP,  the  share 
of  taxes  on  labour  also  remained  below  the  EU 
average  of  19.4 %,  with  an  implicit  tax  rate  of 
32.0 %  in  2017.  In  addition,  the  redistributive 
effect  of  household  direct  taxation  is  much  below 
the EU average (18). 

education 

(17)  The 2018 reviews comprise seven evaluations of subsidies 
in  the  following  areas:  prescription  drugs,  active  labour 
market  policies,  university 
scholarships, 
promotion  of  talent  and  employability  in  R&D  and 
innovation (pre- and post-doctoral aid programmes), the re-
industrialisation and industrial competitiveness programme 
(RIC),  the  Spanish  national  post  service  and  finally  an 
overall  evaluation  of  the  strategy  and  procedures  in 
granting  subsidies.  The  2019  reviews  comprise 
the 
evaluation of the following expenditure items: expenditure 
in  hospitals,  investments  in  public  infrastructure,  tax 
benefits and hiring incentives. 

(18)  Direct household taxation reduces the S80/S20 by 8.6% in 

Spain in 2016, against 12.4 % in the EU.  

32 

 
                                                           
4.1. Public finances and taxation 

Box 4.1.2: Medium-term projections for government debt 

The government debt trajectory has been simulated under different scenarios. Under the baseline scenario, 
the general government debt is forecast to decrease slightly until 2020, before rising again until the end of 
the projection period in 2029, when it reaches about 107.3 % of GDP. The baseline has been derived from 
the Commission 2018 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 (before cost of ageing) is set constant at the value projected 
for  2020,  at  -1.0%  of  GDP,  hence  assuming  that  no  further  structural  adjustment  is  made.  The  cyclical 
component of the primary balance is calculated using (country-specific) budget balance sensitivities over the 
period until  output  gap  closure  is  assumed  (2023).  Second, the  long-term  interest  rate  on  new  and  rolled-
over debt is assumed to be 3.0 % 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 3.0 % 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 2.0 % in 2023 and remain constant thereafter. Fourth, the stock-flow adjustment is set to zero after 
2020. 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 
1.3 % in 2018-2023 and to slow to 1.0 % on average in 2024-2029. 

Graph 4.1.2.1: 

Gross government debt — Spain 

(1) Combined negative/positive shock on interest rates and nominal GDP growth: +1p.p./-1p.p. on short- and long-term 
interest rates on new and rolled over debt and -0.5/+0.5 p.p. on nominal GDP growth over the whole projection period, 2019-
29. 
Source: European Commission. 

More favourable assumptions on real growth and interest rates would lead the debt ratio to follow a lower 
path to reach 96.8 % of GDP in 2029. By contrast, under more unfavourable assumptions on these variables, 
the debt ratio would increase to 119.1 % of GDP by 2029.  

The total tax revenue ratio to GDP has regained 
the level prior to the boom and bust episode of a 
decade  ago.  After  peaking  at  36.4 %  of  GDP  in 
2007 and bottoming out at 29.8 % of GDP in 2009, 
total tax revenues have gradually recovered and, as 
indicated,  reached,  33.8 %  of  GDP  in  2017, 
slightly  above 
the  200-2017  average.  While 
indirect taxes, such as Value  Added Tax, are now 
clearly  above  its  2005-2017  average  (+0.7 pps) 

and  personal  income  taxes  are  somewhat  above 
(+0.2 pps.), social contributions (-0.2 pps.) and, in 
particular,  corporate  income  taxes  (-0.4 pps.)  still 
fall  short  of  that  level.  The  2019  Draft  Budgetary 
Plan  contained  tax  measures  that  the  authorities 
estimated  would  yield  about  0.6 %  of  GDP  in 
additional 
included  planned 
increases  in  corporate  and  personal  income  taxes, 
environmental  taxes  and  wealth  taxes  and  the 

revenue.  These 

33 

6575859510511512520162017201820192020202120222023202420252026202720282029% of GDPBaselineFavourable combined scenarioAdverse combined scenario 
 
 
 
  
  
4.1. Public finances and taxation 

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). 
Also,  diesel  is  taxed  relatively  less  than  petrol  in 
Spain, with a ratio of 0.73 in 2018 compared with 
an EU average of 0.81. 

the 

taxes 

to  growth  and  are  preferable 

Spain  relies  to  a  relatively  low  extent  on 
recurrent  property  taxes.  Recurrent  property 
least 
taxes  are  considered  among 
detrimental 
to 
transaction  taxes,  as  the  former  allow  a  more 
efficient  allocation  of  assets  and  higher  labour 
mobility. While revenues from property taxation in 
Spain  are  slightly  above  the  EU  average  (2.7 % 
compared  with  2.6 %  of  GDP  in  2017),  the 
recurrent element is below the EU average (1.2 % 
of  GDP  compared  with  1.6 %  in  2017),  while 
transaction  taxes  exceed  the  EU  average  (1.5 % 
compared with 1.0 % of GDP in 2016).  

The R&D tax credit is one of the most generous 
and generic in the EU. However, it does not seem 
to  lead  to  a  significant  increase  in  private  R&D 
investment. The uptake in tax incentives for R&D 
might  be  fostered  by  removing  administrative 
barriers limiting their implementation (Cordón and 
Gutiérrez  Lousa,  2010;  Busom,  Corchuelo  and 
Martínez  Ros,  2014).  Evidence  shows  that  the 
probability of using tax incentives decreases when 
firms, 
in  particular  small  and  medium-sized 
businesses,  face  financial  constraints  (Busom, 
Corchuelo and Martínez Ros, 2014).  

High compliance costs and an ageing workforce 
at  the  tax  authority  are  two  areas  of  concern. 
Tax  compliance  costs  are  relatively  high  in  Spain 
due  to  the  high  ratio  of  direct  tax  obligations  to 
turnover (2.6 %). Moreover, OECD data on human 
resources  of  the  Spanish  Tax  Administration 
(Agencia  Estatal  de  Administración  Tributaria) 
shows  a  high  degree  of  ageing  staff,  where  less 
than 20 % were below the age of 45 in 2015. This 
figure has to be read in conjunction with 2015 data  
showing  that  Spain  has  the  lowest  number  of  tax 
agents  per  citizen  among  EU  Member  States  that 
are  OECD  members  (OECD,  2017b).  This  points 
to  possible  future  human  resource  bottlenecks. 
Procedures  have  been  initiated  to  hire  1300  civil 
servants  in  2019  (tax  inspectors,  tax  technicians, 
tax  agents,  custom  police  agents  and  auxiliary 
officials).  

to 

(19).  According 

introduction  of  new  taxes  on  the  digital  economy 
transactions  (see  European 
and  on  financial 
Commission,  2018c) 
the 
Commission  2018  autumn  forecast,  Spain  is  still 
forecast to have a structural government deficit of 
3.1% in both 2019 and 2020, reflecting a relatively 
low  level  of  taxation  in  relation  to  expenditure. 
The  situation  should  be  reassessed  in  light  of 
evolving  circumstances 
forthcoming 
Commission 2019 spring forecast.  

the 

in 

Despite  a  standard  Value  Added  Tax  (VAT) 
rate in line with the EU average (21 % vs an EU 
average  of  21.6 %),  Spain  collects  relatively 
little  Value  Added  Tax  revenues.  This  is  due  to 
extensive  use  of  reduced  and  super  reduced  rates, 
resulting  in  a  large  Value  Added  Tax  policy  gap. 
In 2016, it stood at 12.81 %, above the EU average 
of  9.95 %  (European  Commission  2018e).  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  regressive 
effect. For instance, this is the case of the reduced 
rate for restaurants and hotels. 

the 

The  Value  Added  Tax  compliance  gap 
continued  to  decrease.  The  gap  –  calculated  as 
the  difference  between 
theoretical  Value 
Added  Tax  liability  and  the  revenue  actually 
received as a percent of the former – amounted to 
2.7 %  in  2016  (down  from  a  peak  of  11.8 %  in 
2013). This is significantly below the EU average 
of  12.3 %.  Spain  has  taken  steps  to  reduce  Value 
Added Tax fraud by increasing taxpayer reporting 
requirements  through  the  Immediate  Supply  of 
Information system. The new system has produced 
a  more automated environment,  reducing the  time 
to comply with Value Added Tax obligations from 
35 to 30.5 hours per company and year. 

Environmental  taxes  are  still  below  the  EU 
in  recent  years. 
increases 
average,  despite 
Environmental  taxes  in  Spain  amounted  to  about 
1.8 % of GDP in 2017, compared to an EU average 
of about 2.4 % of GDP. In particular, energy taxes 
little 
(including 
revenue  and  amounted  to  about  1.5 %  of  GDP  in 
2016, compared to an EU average of about 1.8 %. 

taxes)  yielded 

transport  fuel 

(19)  These measures were subsequently submitted to Parliament 
for  approval  through  the  draft  Budget  Law  that  was 
rejected  on  13  February  2019  or,  in  the  case  of  the  new 
taxes, separate draft laws. 

34 

 
                                                           
4.2.  FINANCIAL SECTOR 

The  solvency  and  liquidity  of  Spanish  banks  is 
satisfactory  amid  positive  credit  flows  to  the 
private  sector  and  continued  debt  reduction. 
Bank  profitability  has  also  improved,  despite 
persistently  low  interest  rates  and  high  litigation 
costs.  The  non-performing  loans  ratio  of  Spanish 
banks,  including  their  international  activity,  has 
continued to decline to just above the EU average 
and  slightly  below  the  euro  area  average.  The 
ongoing  restructuring  and  consolidation  of  the 
banking sector allows it to continue to optimise its 
business  model  and  to  lower  its  costs.  The 
outstanding  level  of  loans  to  the  Spanish  private 
sector has declined further, driven by non-financial 
corporations, but deleveraging needs persist.  

4.2.1.  FINANCIAL SECTOR * 

Improved profitability allows Spanish banks to 
remain  well  capitalized,  although  the  capital 
ratio is still below the EU average. On the back 
of  the  favourable  economic  environment,  Spanish 
banks recorded a domestic return on equity (ROE) 
of  6.2 %  in  June  2018,  up  from  5.9 %  a  year 
earlier. The consolidated business recorded a more 
favourable return on equity of 8.9 % in June 2018 
(8.2 %  a  year  earlier).  According  to  European 
Banking  Authority data, the  fully loaded common 
equity  tier  1  (CET  1)  ratio  was  11.1 %  at  the  end 
of  June  2018,  still  more  than  3  percentage  points 
below  the  EU  average  (14.3 %).  However,  the 
results  of  the  2018  EU  wide  stress  test  exercise 
published on 2 November 2018 showed resilience 
of  the  four  stress-tested  banks  in  the  event  of  a 
potential adverse scenario.  

loans  for 

The percentage of non-performing loans (NPLs) 
in the banking sector has decreased further. The 
the 
total  stock  of  non-performing 
corporate  and  household  segments 
in  Spain 
decreased to 6.4 % in June 2018, 2 pp. lower than 
a year earlier. When the foreign activity of Spanish 
banks  is  taken  into  account,  the  share  of  non-
performing  loans  is  even  lower,  at  4.1 %  in  H1 
2018,  close  to  the  euro  area  average  (4.2 %)  and 
slightly  above  the  EU  average  of  3.4 %  (see 
Table 4.2.1).  The  progress  achieved 
the 
reduction of legacy assets was primarily due to the 
sales  of  non-performing  loans  portfolios,  and  to  a 
lesser  extent  to  recoveries  and  write-offs.  By 
contrast, the divestment of SAREB’s assets in the 
first half of 2018 – both loans and real estate –was 

in 

slower  than  planned  and  the  company  continued 
posting  losses  in  the  first  half  of  2018.  This  is 
related  to  the  lower  quality  of  its  remaining 
portfolio  compared  to  what  has  already  been 
liquidated  and  the  fact  that  the  majority  of 
SAREB’s  real  estate  assets  are  concentrated  in 
areas where prices are recovering slowly. 

that 

followed 

assets.  The 

housing  market 

The  housing  market  has  consolidated 
its 
recovery,  supporting  the  clean-up  of  banks’ 
legacy 
and 
construction  sector  continued  to  recover  from  the 
sharp  adjustment 
the  crisis. 
Unsubsidised  house  prices  increased  by  7.2 % 
year-on-year in the third quarter of 2018. Prices of 
new dwellings went up by 6.1 % and those of used 
dwellings  by  7.3 %.    Despite  this  increase,  house 
prices  remain  below  the  pre-crisis  peaks,  in  both 
nominal and real terms (by around 22 % and 32 %, 
respectively).  According 
standard  price 
still 
valuation 
undervalued in Spain, but some indicators suggest 
the gap is closing (see Graph 4.2.1).(20)  

indicators,  house  prices  are 

to 

Price  increases,  however,  differed  substantially 
across  autonomous  regions.  In  Q3-2018,  price 
growth  ranged  between  about  2.2 %  year-on-year 
in Extremadura and more than 11 % in the Madrid 
region,  which  together  with  Catalonia  and  the 
Balearic  Islands  recorded  the  largest  increases. 
Regarding  the  volume  of  transactions,  during  the 
three-month period ending in October 2018, house 
purchases  continued  to  increase  at  a  strong,  but 
declining,  rate  (10.8 %  year-on-year  compared  to 
18 % a year earlier) (21). Residential investment is 
also increasing (to 5 % of GDP in 2017), although 
still  at  a  much  lower  pace  than  before  the  crisis, 
and  the  stock  of  unsold  houses  remains  high  in 
some  regions.  This  helps  explain  the  above-

(20)  The analysis of price valuations is based on an average of 
three  metrics:  (i)  affordability  gap  (price-to-income 
deviation  with  respect  to  its  long-term  average);  (ii) 
dividend  gap  (price-to-rent  deviation  from  its  long-term 
average);  and  (iii)  estimates  of  deviations  of  house  prices 
from  equilibrium  values  justified  by  housing  demand  and 
supply  fundamentals.  See  Philiponnet  and  Turrini,  2017. 
Apart from these indicators, the European Commission has 
recently  used  housing  price  in  levels  to  compute  the 
number of years of income per-capita required to buy a 100 
m2  dwelling.  This  price-to-income  ratilo  in  levels  reached 
9.9  years  in  Spain  on  average  between  2014  and  2017, 
slightly below 10 years, the threshold that reflects a higher 
probability of overvaluation in the housing market 

(21)  Source: Instituto Nacional de Estadística (INE). 

35 

 
 
 
 
                                                           
4.2. Financial sector 

Table 4.2.1: 

Financial soundness indicators, all banks in Spain 

(1) Annualized data. 
(2) Domestic banking groups and standalone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and non-
EU) controlled branches 
Source: ECB - CBD2 - Consolidated Banking data; own calculations. 

mentioned  regional  differences  in  house  price 
developments.  

Graph 4.2.1:  Overvaluation gap with respect to 

price/income, price/rent and fundamental 
model-based valuation gaps 

lending  still  registered  a  slight  decrease.  By 
contrast,  the  volume  of  outstanding  bank  loans  to 
households  increased  by  0.3 %  year-on-year  in 
August  2018,  prolonging  the  positive  growth  that 
started  last  June,  for  the  first  time  since  2010.  In 
the  first  half  of  2018,  according  to  the  Bank 
Lending  Survey  (Bank  of  Spain,  2018c),  credit 
conditions  eased  for  both  company  loans  and 
household  lending.  For  the  latter,  this  concerns 
both  mortgage  and,  most  notably,  consumer 
lending.  Although  the  volume  of  consumer  credit 
in  Spanish  banks’  portfolios  remains  small,  its 
large increase requires careful monitoring. 

Graph 4.2.2:  Loans to the private sector 

(1) Philiponnet and Turrini (2017) 
Source: Own calculations 

The outstanding volume of credit to the private 
sector  is  still  decreasing.  In  August  2018,  the 
pace  of  reduction  of  banks'  domestic  assets 
declined further to about 1 % year-on-year, in line 
with  the  overall  decline  of  the  stock  of  domestic 
private credit. The decline was driven by credit to 
in 
non-financial  corporations 
August  2018  was  4.5 %  lower  than  a  year  earlier 
(Graph 4.2.2).  The  strong  reduction  of  credit  to 
non-financial corporates mainly reflects the clean-
up  of  non-performing  portfolios  linked  to  the 
construction  and  real  estate  sector.  But  even 
excluding  this  effect,  non-financial  corporations  

(NFCs),  which 

Source: Bank of Spain, own calculations 

4.2.2.  ACCESS TO FINANCE 

While  the  banking  system  remains  the  biggest 
source  of  finance,  other  sources  have  emerged. 

36 

-40-30-20-10010203040509799010305070911131517% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap-30-20-10010203040070809101112131415161718% y-o-yTotal non-MFI private sectorNon-financial corporatesHouseholds & NPISH2014q42015q42016q22016q32016q42017q12017q22017q32017q42018q12018q2Non-performing loans8.16.35.95.85.75.45.34.74.44.44.1o/w foreign entities10.48.15.65.55.04.13.73.73.23.12.8o/w NFC & HH sectors10.18.17.77.57.37.37.16.36.1-5.6o/w NFC sector16.412.812.011.610.910.310.08.37.97.46.8o/w HH sector5.34.54.54.54.54.64.54.54.44.44.3Coverage ratio46.446.846.245.845.043.944.942.442.745.244.7Return on equity(1)6.76.66.86.95.07.98.27.67.09.68.9Return on assets(1)0.50.50.50.50.40.60.60.60.50.70.7Total capital ratio13.614.514.615.014.714.614.415.315.415.115.1CET 1 ratio11.812.712.612.912.812.211.812.612.612.011.8Tier 1 ratio11.812.712.713.113.012.612.313.113.213.213.2Loan to deposit ratio90.391.793.293.692.591.490.889.689.389.889.9 
 
 
 
 
 
 
In 2017, total bank loans in the economy reached a 
level  equivalent  to  about  42 %  of  GDP,  almost  3 
pp lower than the previous year, but still above the 
EU  average  of  around  35 %  of  GDP  (see 
Graph 4.2.3).  Non-bank  financial  intermediation 
through equity markets and debt issuance is below 
the EU average. The number of Spanish firms that 
raise  funds  through  debt  securities  has  increased 
notably in recent years (by 40 % between 2014 and 
2017),  as  has  the  number  of  issuances  by  small-
sized and medium-sized firms (less than EUR 100 
million), which accounted for around 50 % of total 
issuances in 2017 compared to 40 % in 2014. The 
increasing  number  of 
in  part 
associated with smaller firms that traditionally had 
not used this financing channel. While remaining a 
niche  option  compared  to  traditional  financing 
is 
sources, 
particularly 
risk  and 
innovative  projects  and  companies.  In  2017,  the 
volume of venture capital funding to Spanish firms 
the  EU  average.  Finally,  funds 
was  above 
channelled 
crowdfunding  platforms, 
through 
regulated  in  Spain  in  2015,  are  growing  rapidly, 
but remain marginal (see Bank of Spain, 2018c).   

through  venture  capital 
for  higher 

important 

issuances 

finance 

is 

financing  and 

Access to finance and availability of bank credit 
is  no  longer  considered  the  most  pressing 
problem  by  Spanish  small  and  medium-sized 
enterprises. Overall, small companies heavily rely 
on  bank 
the  availability  of 
alternative  financing  is  underdeveloped.  On  a 
positive  note,  Spanish  banks  are  now  far  more 
willing  to  provide  loans  to  small  and  medium-
sized  companies 
is 
continuing  to  improve.  Similarly,  the  percentage 
share of rejected loan applications continues to fall 
—  dropping  by  around  15  pps  between  2012  and 
September  2018  (European  Central  Bank  survey 
on the access to finance of enterprise, SAFE, April 
2018 – September 2018). 

in  2013  and 

than 

this 

4.2. Financial sector 

Graph 4.2.3:  Sources of financing of the Spanish economy 

Source: Ameco, ECB, Invest Europe. 

to 

companies 

New measures have recently been implemented 
to  ease  access  to  non-bank  financing  for  small 
and  medium-sized  enterprises.  Access  to  such 
funding  is  easier  at  the  start-up  phase,  but  much 
less  so  at  the  scale-up  phase,  when  small  and 
medium-sized  companies  seek  to  expand.  During 
2017  and  the  first  quarter  of  2018,  several  new 
measures were introduced to fill this gap, such as: 
a)  the  ‘ENISA  growth’  (ENISA  crecimiento) 
provides  financial  support  to  small  and  medium-
improve 
sized 
competitiveness,  b) 
line  FOND-
the 
ICOSME’  (línea  ICO  FOND-ICOPYME)  also 
provides  financial  support  to  small  and  medium-
sized companies to put a long-term growth plan in 
place.  Funding  is  available  either  in  the  form  of 
equity  financing  or  through  participative  loans,  c) 
Industria) 
the 
provides  personalised 
to 
industrial  companies  on  how  to  access  public 
financing,  d)  'With  a  Guarantee,  Yes’  (Con  Aval 
Sí) is an electronic platform that aims to facilitate 
small  and  medium-sized  company 
financing 
through mutual guarantee societies.   

‘Financing  Industry’ 

(Financia 

advisory 

services 

grow 

‘ICO 

and 

4.2.3.  PRIVATE SECTOR DELEVERAGING * 

Private  sector  indebtedness  continues  to  fall, 
although  the  stock  of  loans  to  households  has 
stopped  declining.  In  Q3-2018,  the  outstanding 
volume  of  private  non-financial  sector  debt 

37 

0.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.050010203040506070Listed shares, 2017Debt securities, 2017MFI loans, 2017Gross operating surplus:corporations, 2017Venture capital (rhs), 2017% of GDPESEU 
 
 
4.2. Financial sector 

Graph 4.2.5:  Decomposition of y-o-y changes in debt-to-

GDP ratios, households 

by 

and 

its  peak 

amounted  to  134.6 %  of  GDP  in  consolidated 
terms,  of  which  59.7 %  of  GDP  was  held  by 
households 
non-financial 
75.0 % 
corporations.  This  is  about  67.9 %  of  GDP  lower 
than  at 
in  Q3-2010  (Graph 4.2.4). 
Prudential and fundamentals-based benchmarks for 
faces 
that  Spain  still 
private  debt 
(22), 
the 
deleveraging 
deleveraging  pace  appears  appropriate  to  allow 
private debt to converge to its fundamentals-based 
benchmark.  

indicate 
needs 

overall 

but 

Graph 4.2.4:  Composition of debt — Spain 

Source: Eurostat. 

credit 

continued 

increasing 

Growth in new credit to households is driven by 
both  loans  for  house  purchases  and  consumer 
credit.  The  pace  of  decline  in  the  stock  of 
mortgage  loans  slowed  down  to  around  1.2  % 
year-on-year in November 2018, while the stock of 
consumer  credit  increased  by  more  than  13  % 
year-on-year.  New  loans  for  house  purchases  and 
consumer 
by 
respectively  10.7 %  and  6.2 %  year-on-year  in 
November  2018.  Between  the  trough  reached  in 
April  2015  and  August  2018, 
the  stock  of 
consumer credit has increased by 50 %, accounting 
loans. 
for  about  10 %  of 
Consumer 
careful 
growth 
monitoring  as  it  poses  risks  that  can  materialize 
quickly 
less 
favourable,  impacting  negatively  on  the  most 
vulnerable 
low-income 
households)  (23).  

if  economic  conditions  become 

total  households' 

deserves 

agents 

credit 

(such 

as 

The  outstanding  level  of  household  debt  has 
stabilised, despite remaining deleveraging needs 
(Graph 4.2.6) (24). 
the 
  Although 

in  2017, 

and 

corporations 

(23)  Nevertheless, the Bank of Spain estimates, the considerable 
(NFC) 
non-financial 
household 
deleveraging  in  recent  years  has  contributed  to  moderate 
the  negative  income  effect  associated  with  interest  rate 
rises  (See  box  7:  "Sensitivity  of  the  income  of  Spanish 
general  government,  non-financial  corporations  and 
households  to  interest  rate  rises",  Economic  Bulletin, 
2/2018). 

Source: Eurostat 

The  increase  in  new  credit  to  households 
interrupted  their  deleveraging  process  in  2018. 
Household  debt  reduction  was  initially  driven  by 
negative  credit  flows,  but  GDP  growth  has 
progressively  become 
the  main  contributor. 
However,  since  June  2018,  nominal  GDP  growth 
has no longer been sufficient to offset the increase 
in net credit flows (Graph 4.2.5).  

(22)  Fundamentals-based  benchmarks 

are  derived 

from 
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  the  probability  of  a  banking  crisis  is  high, 
minimising the probability of missed crisis and that of false 
alerts, see European Commission (2017a). Spanish private 
debt  exceeded  the  benchmark  based  on  fundamentals  by 
about 27 % of GDP and the prudential threshold by about 
39 % in 2017. 

(24)  In  2017,  fundamentals-based  benchmarks  are  estimated  at 
66 % of GDP in the case of non-financial corporations and 

38 

05010015020025030035002Q407Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q118Q1% of GDPGovernmentHouseholdNon financial corporationsPrivate non-financial sector-8-6-4-202468101207Q308Q309Q310Q311Q312Q313Q314Q315Q316Q317Q3y-o-y changeCredit flowReal growthInflationOther changesD/GDP, change 
 
                                                           
 
                                                           
4.2. Financial sector 

Graph 4.2.6:  Gap to the fundamental-based and prudential 

benchmarks for household and NFC debt 

than 

faster 

adjustment  was 
suggested  by 
fundamentals,  indicating  a  sufficient  deleveraging 
speed,  the  household  saving  ratio  is  too  low  to 
guarantee  household  debt’s  sustainability  at 
aggregate 
is 
unevenly  distributed  across  households,  and  some 
over-indebted  households  –  often  living  on  low-
income  or  jobless  -  are  particularly  vulnerable  to 
changes 
financial 
in 
environment (Box 4.2.1). 

level (25).  What 

is  more,  debt 

economic 

and 

the 

46 % of GDP for households, while the prudential ones are 
estimated at 58 % and 42 % of GDP, respectively.   

(25)  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. 

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

39 

-20-10010203040506070959799010305070911131517% of GDPNFC gap to fundamentals-based benchmark, consolidatedunadjusted NFC debt, ppsNFC gap to prudential benchmark, consolidated unadjustedNFC debt, ppsHouseholds debt gap to fundamentals-based benchmark,ppsHouseholds debt gap to prudential benchmark, pps 
                                                                                   
 
4.2. Financial sector 

Box 4.2.1: Determinants of private consumption 

Since  the  recovery  started  in  2013,  real  private  consumption  in  Spain  has  been  growing  faster  than  real 
household  disposable  income,  bringing  the  savings  rate  to  a  historic  low,  which,  together  with  strong 
investment,  has  resulted  in  households  becoming  net  borrowers  again.  In  this  respect,  the  role  of  pent-up 
demand, mainly for durable goods, that built-up during the crisis due to the decrease in household income, 
the  rise  in precautionary  savings,  and  credit  restrictions,  is  well  documented  (Bank  of  Spain, 2018d).  The 
economic  theory  suggests  that  consumption  evolves  in  line  with  household  disposable  income,  consumer 
confidence,  interest  rates,  and  household  wealth.  In  addition,  a  higher  propensity  to  consume  can  be 
expected  when increases in disposable income arise  from employment growth compared to  when it arises 
from increases in the wage per head, as it has been the case in recent years. In order to investigate whether 
these  macroeconomic  determinants  can  explain  the  strength  of  household  expenditure  in  recent  years,  a 
private consumption equation is estimated (1). The results from this estimation suggest that consumption has 
evolved in recent years in line with fundamentals, and that the model would predict a pick-up of the saving's 
rate in the coming years (Graph 4.2.1.1). The results also suggest that growth in disposable income arising 
from job creation results in a higher propensity to consume than when it arises from increases in the wage 
per head. In particular, the model predicts that a 1% increase arising from employment growth would result 
in  a  0.83%  increase  in  consumption,  compared  to  0.19%  arising  from  an  increase  in  the  wage  per  head. 
Additionally,  the  results  of  the  estimation  also  show  that  high  consumer  confidence  and  low  real  interest 
rates have also played a positive but smaller role in explaining consumption growth in recent years. Finally, 
net wealth does not appear to have played a role in explaining the evolution of consumption in our model. (2) 

Graph 4.2.1.1: 

Determinants of private consumption (1), model forecasts for consumption (2) and savings' rate (3) 

Source: AMECO, European Commission own calculations. (*) Forecasts start in 2015 using the estimated model 

At  the  same  time,  the  decline  in  the  savings  rate  in  recent  years  has  been  accompanied  by  a  substantial 
increase in household net financial wealth, reducing the macroeconomic vulnerabilities associated to a low 
savings rate in the event of a negative shock, as agents would be better placed to smooth their consumption 
and investment pattern over the cycle. This improvement has taken place both due to an increase in financial 
assets and a crucially substantial decline in financial liabilities, especially long-term debt. However, it must 
be noted that part of the increase in financial assets has been not only motivated by net savings, but also to a 
large extent by valuation effects (in particular in equity) (Graph 4.2.1.3 left).  

Although  consumption  per  capita  in  both  nominal  and  real  terms  is  still  below  its  2008  level,  a  more 
granular  approach  to  the  evolution  of  consumption  by  household  type,  reveals  that  most  of  the  fall  and 
subsequent recovery of consumption has taken place in the lowest income quintiles (Graph  4.2.1.2 left). In 
fact,  consumption  level  is  still  substantially  below  the  pre-crisis  level  in  nominal  terms  only  among  the 
lowest  income  quintile  group,  which  was  also  hit  hardest  by  the  crisis.  In  particular,  the  rise  in  the 
consumption  of  durable  goods  has  been  stronger  among  lower  income  groups  than  among  the  overall 
population, but nevertheless they remain well below their pre-crisis levels (Graph 4.2.1.2 right). Although 
lower  income  groups  represent  a  small  share  of  total  expenditure,  this  could  imply  that  consumption  and 
savings' patterns have differed substantially among income groups. In particular, the lowest income deciles 
have  experienced  the  strongest  growth  in  consumption  since  crisis,  despite  lower  income  growth  than  the 
average (Graph 4.2.1.3 right), suggesting a larger fall in the savings rate among low-income groups (which 

40 

-8%-6%-4%-2%0%2%4%6%9698000204060810121416RESIDCONS CONF (change)INT RATE (pp change)WAGE (% yoy)EMPL (% yoy)CONS (% yoy)-6%-5%-4%-3%-2%-1%0%1%2%3%4%0708091011121314151617181920ActualFitted / Forecast (*)024681012141608091011121314151617181920ActualForecast 
 
4.2. Financial sector 

in  some  cases,  could  be  negative).  This  could  be  an  indication  of  higher  vulnerability  of  lower  income 
households to changes in economic and financial conditions.  

Graph 4.2.1.2: 

Evolution of consumption by quintile, 2007-17 % change (left); and growth in consumption of 

durable goods by income level (right), 2008-17 % change 

Source: INE, European Commission own calculations.  

The  conclusion  would  be  that,  at  an  aggregate  level,  the  strength  of  consumption  in  recent  years  can  be 
explained by fundamentals, in particular, by strong job creation, and that a recovery in the savings rate could 
be expected over the near term. Besides, at an aggregate level, the low savings rate has been accompanied by 
an  improvement  in  the  financial  position  of  families,  and  therefore  the  associated  macroeconomic 
vulnerabilities  are  lower  than  in  the  pre-crisis  period.  However,  a  more  granular  approach  suggests  that 
income  and  consumption  patterns  have  varied  greatly  across  income  levels  and  labour  market  status,  and 
that low-income households may have seen an increase in their vulnerability in recent years. 

Graph 4.2.1.3: 

Change in household financial balance sheets, 2008-17 % change (left), and change in income by 

income decile, 2008-17 % change (right) 

Source: INE, Eurostat, European Commission own calculations. 

(1)  The  estimation  is  conducted  in  two  steps:  in  the  first  step,  consumption  is  estimated  as  a  function  of  employment 
growth and wage growth, and in the second step the residuals from this regression are estimated as a function of real 
interest rates, consumer confidence, and net wealth, following the methodology used in Caixabank Research, 2018.  
(2)  Past research also found that wealth effects have had a limited role in explaining consumption decisions in Spain (Bank 

of Spain). 

41 

-20%-15%-10%-5%0%5%10%15%    Total    Quintil1    Quintil2    Quintil3    Quintil4    Quintil52014-20172007-20142007-2017-60%-50%-40%-30%-20%-10%0%10%20%30%40%2013-20172008-2013Total-40-200204060Currency and depositsEquityOther financial assetsTotal AssetsLong term loansOther liabilitiesTotal Liab.Net financial worthchange 2008-2017, %-14%-12%-10%-8%-6%-4%-2%0%2%4%6%8%2nd3rd4th5th6th7th8th9th10thChange in lower limit of income by decile2013-20172008-2013Total 
 
 
 
 
 
 
  
  
  
   
 
The  financial  burden  of  Spanish  households 
continued  falling 
in  2018,  although  at  a 
declining  pace.  With  low  interest  rates  and 
variable  rate  loans  prevailing  in  the  Spanish 
mortgage  market,  the  financial  burden  borne  by 
households  to  service  their  debt  has  been  falling 
rapidly. Nevertheless, in the first half of 2018, the 
debt  servicing  burden  of  households  relative  to 
disposable  income  remained  broadly  stable (26), 
reflecting  the  increase  in  households’  debt.  The 
continued  decline  of  the  share  of  new  mortgages 
with  variable  rates  reduced  households'  exposure 
changes.  Labour  market 
to 
improvements  and  growing  gross  disposable 
income  have allowed the share of non-performing 
loans  in  household  debt  to  continue  declining  to 
5.2 % in the second quarter of 2018, compared to 
5.4 % at the end of 2017. 

interest 

rate 

debt-to-GDP 

ratio.  Since 

Debt  reduction  in  the  corporate  sector  as  a 
whole  is  taking  place  simultaneously  with  new 
borrowing. Between 2012 and 2016, negative net 
credit flows were the main driver of the fall in the 
corporate 
then, 
deleveraging  has  been  mainly  driven  by  GDP 
growth, as the recovery of capital investment amid 
favourable financing conditions  has resulted in an 
increase in new credit. New lending to both small 
and  medium-sized  firms  (proxied  by  loans  under 
EUR 1 million) and bigger firms continued to rise 
in  the  first  eight  months  of  2018,  by  6.2 %  and 
10.3 % year-on-year, respectively. As a result, the 
deleveraging process slowed down during the first 
half of 2018 (27). According to the Bank of Spain's 
Central  Credit  Register,  while  the  total  stock  of 
outstanding  credit  to  non-financial  corporations 
decreased  between  2012  and 2016,  the  proportion 
their 
of  firms 
borrowing  levels  rose  (Bank  of  Spain,  2018b).  In 
addition,  the  slowdown  in  the  pace  of  decline  of 
non-financial  corporations’  debt  was  even  more 
marked  when  including  external  borrowing  and 
issuance  of  bonds  (-2.6 %  year-on-year  in  August 
2018  vs  -4.5 %  only  taking  account  of  bank 

increased  or  maintained 

that 

(26)  The  interest  burden  is  the  ratio  of  interest  payments  to 

gross disposable income. 

(27)  In  April  and  May,  the  stock  of  loans  granted  by  resident 
banks  briefly  intensified  its  decline  due  to  the  higher 
repayments in the last three months, possibly related, to the 
end  (in  January)  of  the  calculation  period  for  setting  the 
interest rate on loans drawn by institutions under the ECB’s 
LITRO II. The interest rate on these operations was set so 
as to encourage lending and depend on the credit balance at 
January 2018.  

credit).  As  in  the  case  of  households,  corporate 
indebtedness  remains  above  the  prudential  and 
fundamentals-based  benchmark  (Graph 4.2.7),  but 
deleveraging is progressing at a sufficient pace. 

Graph 4.2.7:  Decomposition of year-on-year changes in 

debt-to-GDP ratios, quarterly non-
consolidated data, non-financial corporations 

Source: Eurostat. 

The  financial  position  of  the  corporate  sector 
has  continued  to  improve  in  the  first  half  of 
2018.  While  remaining  negative,  the  net  financial 
wealth  of  firms  increased  for  a  fifth  consecutive 
year,  from  −134.3 %  of  GDP  in  2013  to  a 
−117.8 %  in  the  second  half  of  2018.  This 
improvement  was  driven  by  reductions  on  the 
liabilities  side  and,  to  a  lesser  extent,  a  modest 
increase  on  the  assets  side.  While  the  latter  was 
concentrated  on  equity  asset  classes,  the  former 
was  mostly  driven  by  reductions  in  long-term 
loans. 

to 

the 

insolvency 

to  finance, 

Reforms 
regulation 
framework  in  2014  and  2015  have  facilitated 
debt restructuring and shortened procedures. In 
a context of strong economic growth and improved 
access 
the  number  of  corporate 
insolvency  proceedings  decreased  by  2.6 %  in 
annual terms in the first three quarters of 2018 (vs. 
0.8 %  in  2017).  According  to  Spain’s  association 
of registrars, in 2017, the proportion of insolvency 
proceedings  ending  up  in  an  agreement  between 
creditors and debtors stood at 8.2 %. This is below 
the  10.5 %  recorded  in  the  two  preceding  years, 
although  above  the  proportion  reached  before  the 
insolvency  reforms  (7.2 %  over  2013  and  2012). 

42 

-20-15-10-50510152008Q109Q110Q111Q112Q113Q114Q115Q116Q117Q118Q1y-o-y changeCredit flowReal growthInflationOther changesD/GDP, change 
 
                                                           
 
4.2. Financial sector 

More  importantly,  the  proportion  of  companies 
being  wound  down  among  companies  in  a  failed 
restructuring  agreement  situation  stood  at  7 %  in 
2017. This is much lower than the two digit figure 
recorded  before  2012 (around  20 %).  It  suggests 
that  the  insolvency  framework  has  become  more 
conducive to debt reduction and has facilitated the 
liquidation  of  non-viable  companies.  In  addition, 
the  median  duration  of  proceedings  with  an 
anticipated  insolvency  plan  was  lower  in  2017 
compared  to  2015  (215  days  and  247  days, 
respectively),  though  still  quite  long.  This  is  also 
the  case  of  ordinary  insolvency  procedures,  the 
duration  of  which  declined  to  440  days  in  2017, 
from 471 days in 2015 (28). 

(28)  ‘Anuario  Concursal’  of  the  Spanish  Official  Body  of 

Registrars, 2017. 

43 

 
                                                           
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET * 

In 

but 

four 

regions, 

(Box 4.3.1). 

unemployment 
important 

The economic recovery continues to uphold job 
and 
high 
creation, 
segmentation  remain 
structural 
challenges.  In  Q3-2018  the  employment  rate  (20-
64)  reached  67.1 %  (seasonally  adjusted),  and 
unemployment  continued  to  decline  steadily  to 
14.5 %  in  Q4-2018.  Both  indicators  are  still  far 
from their pre-crisis levels and worse than the EU 
averages 
the 
unemployment  rate  is  almost  three  times  the 
lowest  rate.  The  share  of  open-ended  contracts  in 
net employment growth kept increasing in the first 
three  quarters  of  2018,  up  to  an  average  of  78  % 
(29). However, this was not sufficient to reduce the 
proportion  of  workers  (aged  15-64)  on  temporary 
contracts, which remains one of the  highest in the 
EU (26.9% on average in the first three quarters of 
2018).  Labour  market  slack  (a  measure  that 
those  marginally 
includes 
attached 
the 
underemployed)  is  declining  but  still  high  (24.5% 
in Q3-2018). 

the  unemployed, 
to 

labour  market 

and 

the 

the  EU  average, 

Activity  rates  remain  stagnant  and  certain 
groups still face labour market exclusion. While 
still  above 
labour  market 
participation  has  remained  stable  since  2012  and 
declined slightly  in 2017, contrary to the  growing 
trend  observed  in  most  EU  countries.  The  young 
(15-24  years  old),  low-skilled (30)  and  non-EU-
born residents struggle to get jobs and thrive on the 
labour  market.  In  Q3-2018,  their  unemployment 
24.5 %, 
rates  were 
respectively. 
is 
decreasing,  but  still  accounts  for  6.3  %  of  the 
active population (1.4 million people, or 41.9 % of 
all  unemployed  in  Q3-2018).  These  differences 
might  be  explained  by  factors  other  than  regional 
as  higher 
labour  market  dynamics, 
education. 
youth 
the 
participation 
Investments  supporting 
increased  employment 
rates and the full mobilisation of the labour force, 
including of women and older workers, could help 

and 
unemployment 

34.3 %, 
Long-term 

such 
in 

22.2 % 

of 

(29)  Eurostat. LFS. Employment (thousand) by type of contract, 
year-on-year  change  based  on  non-seasonally  adjusted 
data. 

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

secondary education (ISCED 0-2). 

addressing  the  challenges  caused  by  population 
ageing and technological and societal change. 

Gender  disparities  in  access  to  the  labour 
market  and 
in  working  careers  remain 
significant.  The  female  activity  rate  (15-64  years 
old)  stabilised  at  68.8 %  in  2017,  just  above  the 
EU average. Both activity and employment rates of 
women  remain  well  below  those  of  men  (-
10.1 pps. and -10.8 pps. in 2017, respectively) with 
no  signs  of  convergence.  In  2017,  the  average 
duration  of  working  careers  was  significantly 
shorter  for  women  than  for  men  (4.5  years),  in 
spite  of  a  recent  decrease  in  this  gap,  with 
temporary  and  involuntary  part-time  contracts 
explaining  part  of  it  (Jansen  and  Troncoso-Ponce, 
2018). Gender differences in both occupations and 
sectors  remains  above  the  EU  average. (31)  The 
(unadjusted) gender pay gap  held stable at 14.2 % 
in  2016,  2 pps.  below  the  EU  average,  but  still 
significant.  The  Government  announced  new 
measures to reduce gender gaps and promote equal 
opportunities for all. These include wage audits for 
large  firms  and  measures  to  encourage  work  and 
life  conciliation  and  co-responsibility. 
family 
Parental leave was extended from 4 to 5 weeks in 
July 2018.  

Labour  market  attachment  of  older  people  is 
high,  but  population  ageing  poses  rising 
challenges. Participation and employment rates of 
older  workers  (aged  50-64  years)  increased  in 
recent years, also linked to pension reforms, (32) to 
above the EU average. However, women above 55 
years  old  still  have  a  low  employment  rate 
(43.5 %,  15.6 pps.  below  men 
in  Q3-2018). 
Following the implementation of the Strategy 55+ 
for 2012-2014, no additional policy measures have 
been taken to improve working conditions for this 
group  of  workers,  including  in  relation  to  health 
and safety at work, and to incentivise employers to 
retain older workers.  

(31)  Average national share of employment for women and men 
(NACE 

each  occupation 

sector 

and 

applied 
classification). 

to 

(32)  In  2016,  the  average  real  retirement  age  was  64.1  years; 
51 % of workers retire at the legal age of retirement, 44 % 
retire early, and only 5 % work after reaching the legal age. 
Source:  Ministry  of  Labour,  Migrations  and  Social 
Security, and European Commission, 2018d. 

44 

 
 
                                                           
                                                           
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 is designed as a compass for a renewed process of upward convergence 
towards better working and living conditions in the European Union.(1) It sets out twenty essential principles 
and rights in the areas of equal opportunities and access to the labour market; fair working conditions; and 
social protection and inclusion.  

rates.  Yet, 

its  pre-crisis 

unemployment 

The Social Scoreboard supporting the European 
Pillar  of  Social  Rights  continues  to  point  to  a 
number  of  challenges  in  Spain.  The  strong 
economic recovery and job creation contributed to a 
faster than average improvement in the overall and 
the 
long-term 
employment rate remains way below that of the EU 
and 
labour  market 
segmentation  and  stagnating  incomes,  notably  in 
the  lower  part  of  the  distribution,  contribute  to  the 
high  level  of  income  inequality  as  well  as  in-work 
poverty. The capacity of social transfers (excluding 
pensions) to reduce poverty remains limited. On the 
positive  side,  Spain  performs  better  than  the  EU 
average  in  providing  access  to  childcare  and  to 
health care services. However, disparities in access 
and quality persist across the territory.  

level.  High 

Young  people  still  struggle  to  find  jobs  but 
remain  more  in  education  and  training.  The 
youth  unemployment  rate  continues  to  decline,  but 
remains almost twice as high than before the crisis. 
The  share  of  young  people  neither  in  employment 
nor  in  education  or  training  (NEET)  and  of  early 
school leavers are gradually falling but remain high 
(respectively  13.3 %  and  18.3 %  in  2017)  as 
highlighted  by 
the  Social  Scoreboard.  Low 
education  levels  greatly  increase  the  risk  of  future 
poverty and social exclusion.  

With  the  support  of  the  European  Social  Fund, 
in 
(Industrial  Organisation  School), 
EOI 
collaboration  with  Google,  provides  digital  training  to  young  unemployed  across  Spain.  Through 
Massive  Open  Online  Courses  (MOOC)  trainings,  individual  tutoring  and  hiring  subsidies,  this  initiative 
enables  young  people  to  specialise  in  digital  fields  that  are  highly  demanded  on  the  labour  market  (e.g. 
web/mobile development, big data, artificial intelligence, robotics and cybersecurity). In 2017, 1 131 people 
received a MOOC certificate, 200 were admitted to a tutoring activity and 61 attended a classroom course. 
95 % of them found a job or resumed studies thanks to the programme.  

(1)  The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council 
and  the  European  Commission:  https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en 

Labour  market  participation  of  persons  with 
disabilities  lags  behind.  The  employment  rate  of 
persons  with  disabilities  (40.5  %  in  2016)  lags 
behind the EU average (48.1%) (33). In 2016, 43 % 

of  persons  aged  50-69  who  retired  due  to  work 
incapacity  wished  to  have  worked  longer.  Some 
measures were taken to improve the employability 
of  people  with  disabilities,  but  relying  largely  on 
sheltered  employment,  which  does  not  seem  to 

(33)Source: EU-SILC 

45 

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)Critical SituationUnemployment rate (% population aged 15-74)Weak but improvingLong-term unemployment rate (population aged 15-74)Weak but improvingGDHI per capita growth To watchNet earnings of a full-time single worker earning AWOn averageImpact 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 SCOREBOARD FOR SPAINEqual opportunities and access to the labour marketDynamic labour markets and fair working conditionsSocial protection and inclusionMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituation").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,pleaseconsultthedraftJoint Employment Report 2019, COM (2018)761 final.NEET:neitherinemploymentnorineducationandtraining;GDHI:grossdisposablehousehold income.                       
 
                                                           
4.3. Labour market, education and social policies 

facilitate  access  to  the  regular  labour  market 
(European Commission, 2016).  

Graph 4.3.1:  The minimum wage as a percentage of 

average and median wage: the effect of 
planned increases in Spain 

The  employment  gap  of  migrants  is  well  below 
the  EU  average  but  has  worsened  during  the 
crisis. In 2017, non-EU born people accounted for 
8.8 %  of  the  Spanish  resident  population,  above 
the  EU  average  (7.2 %).  The  employment  gap 
between  non-EU born and EU-born is  well below 
the  EU  average  (4.4 pps.  compared  to  10 pps.). 
Yet, between 2008 and 2017, the employment rate 
of the non-EU born decreased even more abruptly 
than for the overall population from 70.5% in 2008 
to 61.6 % in 2017.  

labour  market  slack, 

Nominal  wage  growth  has  been  stagnant  in 
recent  years,  but  is  picking  up  (see  Section  1). 
After several years of very slow growth, negotiated 
wages  continue  to  grow  moderately  (1.7 %  on 
average  in  2018  compared  to  1.5 %  in  2017). 
together  with 
Sizeable 
persistently low inflation, can explain the moderate 
wage growth (Bank of Spain, 2018a). A collective 
inter-professional  agreement  signed  in  July  2018 
by  the  main  social  partners  envisaged  an  increase 
in  negotiated  wages  by  2 %  in  2018,  2019  and 
2020,  plus  an  additional  1 %  conditional  upon 
productivity  growth.  It  also  sets  a  floor  of  EUR 
14 000 a year for negotiated wages, to be reached 
by 2021. However, it remains to be seen if it  will 
be implemented.  

(1) Calculations are based on the assumption that average 
and median wages grow at the same rate as compensation 
per employee (Commission Autumn 2018 Forecast).  
Source: OECD, European Commission calculations.. 

increases 

in  2017  and  2018, 

Spain has recently approved a steep increase in 
the  minimum  wage  for  2019.  Following  more 
moderate 
the 
minimum wage was raised by 22.3%, to EUR 900 
per  month.  This  initiative  disregarded  the  more 
gradual  trajectory  agreed  with  the  social  partners 
in  December  2017.  The  stipulated 
increase 
outpaces  the  expected  moderate  acceleration  in 
consumer  prices  and  labour  productivity  for  2019 
and  moves  Spain's  ratio  of  minimum  to  median 
and  average  wages  close  to  the  EU  average,  up 
from one of the lowest such ratio in 2016.   

46 

0.00.10.20.30.40.50.60.7FRSIPTROLUPLLTHULVES 2019BEUKELSKDEIENLES 2018EECZES 2016Minimum to median wageMinimum to average wage 
 
4.3. Labour market, education and social policies 

Graph 4.3.2:  Projected ratio of minimum to average wage 
in 2019 rate v. unemployment rate by region, 
2017 

(*)Minimum wage is derived from the government proposal, 
and amounts to 12600 EUR / year, based on wage per hour. 
Source: National Statistical Office, European Commission. 

the 

The  potential  impact  of  the  minimum  wage 
increase  on employment  may vary significantly 
across  regions  and  categories  of  workers, 
coverage.  Commission 
depending  on 
calculations  based  on  microdata 
from  EU-
SILC (34)  suggest  that  approximately  11 %  of 
workers would receive the new minimum wage, in 
2019, compared to 4% with the minimum wage in 
force in 2017. Coverage would range from 3 % in 
Navarre  or  6 %  in  Rioja,  through  10 %  in  the 
Madrid region and Catalonia, to 15 % in Andalusia 
or  18 %  in  Valencia.  On  average,  it  would  be 
higher  in  regions  with  higher  unemployment 
(Graph 4.3.2).  Across  sectors,  coverage  would 
range from below 5 % in the public sector, 8 % in 
industry,  to  about  30 %  in  agriculture  and  in 
certain  activities  within  the  accommodation  and 
food  services.  Bank  of  Spain  estimates  that  the 
increase  in  the  minimum  wage  to  EUR  900  in 
2019 would affect 6.2 % of employees aged 16-64, 
with  a  negative  employment  effect  of  0.8  %  of 
total  employment  (Bank  of  Spain,  2019a).  The 
potential negative effect on employment would be 
greater  for  low-wage  workers,  that  prevail  among 
new entrants (coverage of 24.5% of  workers aged 
16-24),  former  long-term  unemployed  (17%),  the 

(34)  Source:  Eurostat.  EU-SILC  data  based  on  2015  incomes. 
Analysis  restricted  to  individuals  working  full-year,  full-
time, in the income reference period.  

low-skilled 
temporary contracts (14,4%) (35).  

(16.8%)  and 

those  working  on 

In  spite  of  increased  outreach  efforts,  the 
employability of young people remains low. The 
share of young people neither in employment, nor 
in  education  or  training  (NEET)  keeps  falling 
(13.3 %  in  2017),  but  it  remains  high  and  varies 
greatly  across  regions. (36)  Registrations  in  the 
Youth  Guarantee  reached  to  56 %  for  the  young 
people neither in employment, nor in education or 
training aged 15-24 in 2017 (compared to 34 % in 
2016)  and  to  27.4 %  for  those  aged  25-29.  The 
share  of  people  still  in  employment,  education  or 
training  six  months  after 
the  Youth 
Guarantee  rose  further  to  60 %  in  2017  for  those 
aged  18-24  and  to  65 %  for  those  aged  25-29. 
However, 
the  most  vulnerable  young  people 
neither in employment, nor in education or training 
tend  to  be  under-represented  among  beneficiaries 
and there is still room for greater cooperation with 
employers  to  improve  engagement  towards  those 
furthest away from the labour market.  

leaving 

for  Youth  Employment 

Additional  resources  have  been  allocated  to  a 
new  Plan 
to  be 
implemented  by  the  regions.  Evidence  suggests 
that  past  hiring  subsidies  for  youth  employment 
have  had  limited  success  and  failed  to  promote 
quality employment. Between 2010 and 2016, only 
2.3 % of all contracts were subsidised and just 7 % 
of  all  contracts  signed  by  young  workers  were 
open-ended. (FUNCAS, 2018). In addition,  young 
workers  on  subsidised  open-ended  contracts  were 
more  likely  to  exit  employment  within  two  years 
than  those  employed  on  non-subsidised  ones, 
casting  doubts  on  the  effectiveness  of  these 
subsidies.  Jansen  and  Troncoso-Ponce  (2018) 
suggest  that  subsidised  training  contracts  that  are 
of 
too  short  duration  do  not  support  skills 
transferability. The  newly adopted Plan for  Youth 
Employment 2019-2021 includes an increase in the 
number  of  counsellors  for  young 
jobseekers 
(+3 000), a review of the existing hiring incentives 
and  measures  covering  guidance,  training  and 

(35)  Minimum  wage  (MW)  increases  could  reduce  in-work 
poverty  (Matsaganis,  2015)  if  not  outpaced  by  negative 
employment effects. However, the simulations by the Bank 
of  Spain  (2019)  estimate  the  overall  impact  on  income  to 
be  neutral,  as  wage  increases  would  be  offset  with 
employment  losses.  The  latter  may  as  well  produce  an 
increase in inequality, estimated at 0.2 % in the Gini index. 

(36)  Eurostat Database (2019) 

47 

ESPANDARAASTBALCANCANTCYLCLMCATVALEXTGALMADMURNAVPVRIOy = 72.401x -19.809R² = 0.4878510152025300.30.40.50.6Unemployment rateKaitz's index 
 
                                                           
                                                           
4.3. Labour market, education and social policies 

actions 
to  foster  entrepreneurship  and  equal 
opportunities. The plan also envisages a review of 
the  Youth  Guarantee  system  and  measures  to 
enhance skills acquisition, including digital, and to 
support  jobs  in  rural  areas,  in  line  with  the 
demographic  challenge  outlined  in  Section  4.4. 
The  EUR  660  million  yearly  budget  allocated  to 
the plan is still provisional and partly based on pre-
existing  resources.  The  implementation  of  the 
Plan, on a voluntary basis, is the competence of the 
regions. 

Measures  for  the  long-term  unemployed  have 
been  updated  and  extended,  but  support 
remains  fragmented  and  effectiveness  limited. 
The  2016  Joint  Action  Plan  for  the  Long-term 
Unemployed  (LTU)  (see  European  Commission 
2017a,  pp.  36  and  60)  is  producing  results.  The 
share of long-term unemployed registered with the 
public  employment  services  (PES)  was  85.5 %  in 
2017  and  the  share  participating  in  education  and 
training  reached  10.4 %,  both  above  the  EU 
average. At the same time, less than one quarter of 
all  long-term  unemployed  received  individualised 
support through a Job Integration Agreement at the 
public  employment  services  in  2017,  still  half  of 
the target for 2018 and well below the EU average 
(82.6 %).  Among  them,  the  share  of  those  who 
regained employment  keeps improving (19.4 % in 
2017,  compared  to  10.7 %  in  2015),  but  is  still 
below  the  EU  average  (23 %).  These  figures 
indicate 
the 
effectiveness  of  active  labour  market  measures  is 
long-term 
needed. 
support 
unemployed 
The 
extraordinary  unemployment  benefit  of  EUR  460 
per  month  replaces  the  previous  PREPARA  and 
PAE  schemes.  It  was  approved  in  July  2018  and 
made  permanent  in  December.  Plans  to  integrate 
existing  non-contributory  national  schemes  are 
under  discussion,  with  no  concrete  proposals  put 
forward yet. 

to 
the 
fragmented. 

investment 

reinforce 

remains 

Income 

that 

to 

Efforts  to  reinforce  the  design  of  the  national 
employment 
system  continue,  but  public 
employment  services  still  play  a  limited  role  as 
intermediaries  in  the  labour  market.  In  2018, 
Spain  carried  on  with  the  modernisation  of  the 
public  employment  services.  Performance 
is 
uneven  across  regions  in  providing  individualised 

in 

in 

the  EU 

assistance  for  jobseekers  and  job  changers. (37) 
Total  expenditure 
the  public  employment 
services  remains  30 %  below  the  level  of  2015. 
Besides,  still  too  few  unemployed  seek  a  job 
through the public employment services (24.6 % in 
Spain  against  46.2 % 
in  2017). 
Investment  needs  remain  in  terms  of  services  to 
employers,  including  profiling  and  matching  of 
jobseekers’  with  employers’  needs,  establishing 
partnerships  with  social  services,  and  providing 
pre-  and  post-hiring  personalised  services.  While 
there is some progress on implementing the single 
points of contact across regions and the use of the 
web  portal  (Empléate)  is  gaining  momentum,  the 
share  of  total  vacancies  managed  by  the  public 
employment  services  was  at  3.1 %  in  2017  vs 
10 %  on  average  in  the  EU.  Cooperation  with 
social  services  is  improving  in  some  regions, 
notably  through joint  staff trainings and exchange 
of  best  practices  in  the  context  of  the  Social 
Inclusion Network. 

Labour mobility is comparatively low in Spain, 
with  limited  incentives  and  persisting  barriers. 
Albeit  increasing  since  the  beginning  of  the 
recovery, labour mobility between regions remains 
low. (38)  The  bulk  of  internal  migration  occurs  to 
or from Catalonia, Madrid and Andalusia, while in 
other  regions  (e.g.,  Aragon  and  Extremadura) 
outflows  largely  outpace  inflows  (International 
Monetary  Fund,  2018).  High  home  ownership, 
labour  market  segmentation,  limited  effectiveness 
of  active  labour  market  policies  and  limited 
transferability  of  regional  social  benefits  provide 
weak incentives for people to move, which in turn 
tend to feed disparities (see Section 4.4). 

Albeit  stabilising,  the  proportion  of  temporary 
contracts remain high. The share of employees in 
temporary  contracts  (15-64)  increased  during  the 
recovery 
in  2017  and  has 
stabilised  in  2018.  At  the  same  time,  the  share  of 

to  reach  26.8 % 

(37)  The  benchmarking  evaluation  program  (EVADES)  shows 
on-going  efforts  in  some  regional  PES  to  incorporate 
statistical and holistic profiling tools, although at different 
stages  of  implementation  and  often  without  an  integrated 
approach.  Challenges  remain  to  better  assess  skills  of  the 
labour  force,  target  services  for  job  entry  and  improve 
results evaluation. 

(38)  The share of working-age population who moved from one 
NUTS-II region to another in Spain was 0.2 % in 2013 vs. 
1.2 % on average in the EU and still higher rates for France 
and  Germany.  This  rate  has  increased  in  Spain  to  about 
0.6 % by 2016. Source: European Commission calculations 
based on the Labour Force Survey. 

48 

 
                                                           
4.3. Labour market, education and social policies 

The  Pact  also  foresees  the  replacement  of  all 
retirements  and 
includes  work-life  balance 
measures.  Recruitment  competitions  to  reduce 
fixed-term  employment  in  the  Spanish  public 
sector  continue,  mainly  at  the  regional  level.  The 
Government  confirmed  the  target  to  reduce  the 
share  of  temporary  employees  down  to  8%  by 
2019.  However,  the  current  share  of  temporary 
employees in the public sector is still at 25.9 % in 
Q3-2018; (INE, 2019).  

Graph 4.3.3:  Newly signed temporary and permanent 

contracts 

open-ended  contracts  among  the  new  hirings  kept 
increasing in the first three quarters of 2018 up to 
an  average  of  78  %.  While  the  share  of  part-time 
employment  (14.6 %  in  2017)  remains  4 pps. 
below  the  EU  average,  involuntary  part-time  is 
very  high  (61.1 %  in  2017  vs  26.4 %  in  the  EU-
28),  in  spite  of  recent  improvements  (64%  in 
2014). Temporary contracts are often of very short 
durations;  32.6 %  of  temporary  employees  have  a 
contract shorter than 6 months, and 17.3 % shorter 
than  1  month.  This  implies  limited  access  to  job-
specific 
reach 
training  and  difficulties 
entitlements  to  unemployment  benefits.  23.1 %  of 
temporary workers were at risk of poverty in Spain 
in 2017, compared to 7.3 % of permanent workers. 
In  addition,  transition  rates  are  low,  since  only 
14.6% of temporary  workers  in Spain  moved to a 
permanent  contract  in  2017,  against  24  %  in  the 
EU  (2017)  (39).  Young  (aged  15-29),  low-skilled 
workers and third country nationals continue to be 
temporary 
the  groups  mostly  affected  by 
employment. (40) 

to 

to 

the 

fight 

Increased  efforts 
the  abuse  of 
temporary  contacts  and  undeclared  work  are 
bearing  fruit.  Extensive  use  of  these  contracts  is 
made  in  all  sectors  (Graph 4.3.3),  including  those 
with  little  seasonal  or  cyclical  activity  (European 
Commission,  2018a).  A  major  aspect  of  the  new 
Action  Plan  for  Decent  Work  2018-2020  is  to 
further  strengthen 
framework  and 
capacity of labour inspectorates to promote quality 
of  jobs  and  fight  against  labour  fraud.  Until 
October  2018, 
to 
transforming 169 161 fixed-term contracts that did 
not abide by the law into open-ended, representing 
according  to  the  Ministry  of  Employment  and 
Social  Security  an  increase  of  82%  compared  to 
2017  (92 900).  There  is  still  no  evaluation  of  the 
effectiveness  of 
the  numerous  national  and 
regional hiring incentives in the private sector.  

inspections 

labour 

legal 

led 

The  Government  reached  an  agreement  with 
social  partners  to  increase  wages  and  improve 
working  conditions  of  public  employees.  The 
agreement  number  II  signed  in  March  2018 
includes  a  fixed  and  accumulated  wage  increase 
for  public  employees  of  6 %  for  2018-2020 
(1.75 % in 2018, 2.25 % in 2019 and 2 % in 2020). 

(39)  Source: Eurostat, Labour transitions by type of contract 
(40)  Respectively 56.3 %, 31.4 % and 37.1 % (source: Eurostat 

database, latest quarterly or annual results). 

(1) 
Source: SEPE, Registro de contratos. 

Measures  to  support  the  self-employed  are 
starting to bear fruit, even if few are opting for 
higher social protection. In the first half of 2018 
the  number  of  newly  registered  self-employed 
increased  by  8 %  compared  to  the  same  period  in 
2017  (Ministry  of  Labour,  Migrations  and  Social 
Security, 2018a). This may reflect a limited impact 
of the extension of the flat rate of EUR 50/ month 
in  social  security  contributions,  that  was  expected 
to  have  benefitted  another  140 500  new  self-
employed  workers  in  2018 (41).  However,  the 
number  of  young  self-employed  aged  15-24 
continued 
less 
compared to 2016). Besides, the measure to adapt 

to  decrease 

in  2017 

(1.3 % 

(41)  Since 2013, the monthly flat rate of EUR 50 per month in 
social security contributions has benefitted some 1 307 000 
self-employed  workers,  being  Andalusia 
(245000), 
Catalonia  (219000),  Madrid  (182000)  and  Valencia 
(149000)  the  regions  with  the  most  beneficiaries.  The  flat 
rate increased in 2019 to EUR 60/ month. Source: Ministry 
of Labour. 

49 

05010015020025030002004006008001,0001,2001,4001,6001,8000809101112131415161718thousandsthousandsTemporary<7 daysPermanent + Transformations (right axis)June and September 2010 Labour Market ReformMarch 2012 Labour Market ReformFebruary 2014 Royal Decree-Law 3/2014February 2015 Royal Decree-Law 1/2015July2018Action Plan for DecentWork 2018-20 
                                                           
 
 
                                                           
4.3. Labour market, education and social policies 

for 

framework 

their  work  in  July  2018.  Their  aim  is  to  discuss 
policy  initiatives  around  five  key  areas,  but  the 
intensity of their discussions remains so far uneven 
the  existing 
fully  exploiting 
and  still  not 
institutional 
social  dialogue. 
Moreover, relevant policy initiatives (e.g., increase 
in  the  minimum  wage)  overlooked  agreements 
concluded  with  social  partners  without  any  prior 
involvement of those partners in the preparation of 
the  measure.  At  the  bipartite  level,  the  inter-
professional  wage  agreement  of  July  2018  can 
improve  the  collective  bargaining  process,  but 
results for both firms and employees remain to be 
seen.  

4.3.2.  EDUCATION AND SKILLS 

Spending on education remains low and efforts 
to agree on long-lasting reforms  stalled against 
a  background  of  low  educational  performance. 
High early-school leaving and a high share of low-
skilled  in  the  population  still  represent  major 
challenges  for  Spain.  However,  in  2016,  general 
government  expenditure  on  education  increased 
slightly,  to  9.5 %  of  total  spending,  but  remains 
below the EU average (10.2 %) and its 2009 peak 
as  a  share  of  GDP  (4 %  vs  4.6 %  in  2009)  (44). 
families (45) 
Education  expenses 
increased  by  34 %  between  2009  and  2016  (INE, 
2017b).  This  may  be  an  issue  for  low-income 
families,  especially  given  the  overall  low  level  of 
income support they receive.  In addition, political 
disagreements  including  on  the  level  of  spending 
contributed  to  close  the  negotiations  on  a  broad-
ranging education reform that had started in 2016. 
The  Government 
then  focused  on  reforming 
specific aspects of the education system, including 
vocational  education  and  training,  and  higher 
education,  but  these  plans  have  not  materialised 
yet. 

incurred  by 

Participation  in  early  childhood  education  and 
care is above the EU average, but disparities in 
access exist between regions. More than 95 % of 
children  aged  3-6  are  enrolled  in  pre-primary 
education,  67.4 %  of 
them  attending  public 
centres. Pre-primary education for children aged 3-

(44)  Source:  General  government  expenditure  by  function 

(COFOG). 

(45)  Spending  mainly  on  foreign  languages,  education  support 
and  reinforcement  classes  provided  inside  and  outside 
school premises. 

contribution bases (up to four times a year) of self-
employed  workers  to  changes  in  the  billing  cycle 
has  not  so  far  promoted  higher  contributions. 
Around  86 %  of  self-employed  workers  without 
employees  and  81 %  of  those  with  employees 
contributed  for  the  minimum  base  (EUR  279  a 
month  in  2018).  Lower  contributions  imply  lower 
lower 
levels  of  protection  and,  ultimately, 
pensions,  with  an  increased  risk  of  poverty. (42) 
Nevertheless,  social  protection  and  social  security 
contributions for practically all self-employed have 
been recently increased.  Challenges exist  to avoid 
that  billing  and  associated  work  cooperatives 
meant to facilitate administrative procedures (often 
in the form of online platforms), become potential 
umbrellas for bogus self-employment. 

further 

The  development  of  the  social  economy  may 
attract 
in  support  of 
investment 
sustainable  job  creation  and  entrepreneurship. 
The sector counts around 43 500 firms (21 000 of 
them cooperatives) directly employing 2.3 million 
workers, in a context of still  strong predominance 
of  the  agricultural  sector  (1.2  million  farmers) 
(Ministry  of  Labour,  Migrations  and  Social 
Security,  2018b).  The  Social  Economy  Strategy 
2017-2020  launched  in  March  2018  aims  at 
favouring  the  creation  and  consolidation  of  social 
economy  enterprises (43).  The  Strategy  also 
supports  self-employed  workers  (currently  around 
338 000  in  the  social  economy),  firms  creating 
new  employment  through  social  entrepreneurship 
and  job  opportunities  for  people  with  disabilities 
(some  197 000  employees  in  this  sector)  through 
programmes, projects and funds. 

involvement  of 

The 
social  partners  has 
is  scope  for 
improved  recently,  but  there 
greater  participation  and  more  structured 
consultation  in  certain  areas.  Efforts  have  been 
made  in  recent  years  to  improve  the  participation 
of  social  partners  in  the  European  Semester 
process, although there is scope for a more timely 
and 
tripartite 
roundtables  launched  in  February  2017  resumed 

consultations.  The 

targeted 

(42)  In  2017,  the  self-employed  received  an  average  monthly 
pension  of  EUR 711  compared 
for 
employees  under  the  General  Social  Security  Scheme. 
Source: Social Security database. 

to  EUR 1 212 

(43)  Enterprises  (cooperatives,  mutual  societies,  non-profit 
associations, foundations, social enterprises, etc) that apply 
commercial  methods  intended  to  make  profits  for  people 
other than investors or owners. 

50 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

In  2018, 

to  39.2 %. 

Efforts  to  hire  more  teaching  staff  and  to 
improve  their  working  conditions  continue.  In 
2016-2017,  24.7 %  of 
teachers  worked  on 
temporary  contracts,  with  regional  rates  ranging 
from  14.6 % 
teacher 
recruitment  competitions  were  held  to  fill  around 
20 000  posts  in  schools  at  International  Standard 
Classification of Education (ISCED) levels 3-5 as 
part  of  a  plan  to  increase  the  overall  number  of 
permanent  teachers  by  200 000  by  2022  (yet  an 
average of 10 % of them remained vacant after the 
competitions).  Some  10 000  new 
in 
ISCED  levels  0-2  were  hired  in  2018  and  more 
competitions  will  take  place  in  2019.  The  plan  to 
reduce the overall proportion of temporary workers 
in the public sector is ongoing (see Section 4.3.1). 

teachers 

in 

reported 

available 

Spain  approved  measures  to  support  teachers’ 
their  mobility.  The 
training  and  boost 
Government  has  approved  new 
training  and 
geographical  mobility  initiatives  and  plans  to 
introduce a teacher appraisal system. However, the 
effectiveness of these measures may depend on the 
to 
level 
support 
funding 
of 
the  OECD 
implementation.  As 
Teaching  and  Learning  International  Survey  2013 
(OECD,  2014),  36 %  of  teachers  never  received 
formal  appraisal  and  14 %  of  those  in  lower 
secondary  education  expressed  a  high  need  for 
professional  development 
information  and 
communication  technologies’  skills  (against  an 
OECD  average  of  18.9%).  In  this  survey,  21.8 % 
of  them  indicated  training  needs  for  teaching 
students  with  special  education  needs  (below  the 
22.3%  OECD  average).  In  2017,  the  Government 
adopted 
Spanish  Digital  Competence 
Framework  for  Teachers  to  improve  teaching 
communication 
skills 
technology  and  designed  a  Digital  Competence 
Portfolio to improve teachers’ digital competences. 

information 

and 

the 

in 

in 

and 

education 

vocational 

initial  vocational  education  and 
Matching 
training (VET) with labour market needs is still 
a  challenge  in  Spain.  In  2016,  the  proportion  of 
initial 
training 
(secondary  education)  students  was  still  well 
below  the  EU  average.  In  2017,  the  employment 
rate of vocational education and training graduates 
(20-34 years old) stood at 58.5 % vs 76.6 % in the 
EU.  Around  26 %  of  young  people  aged  15-34 
holding  a  vocational  education  and 
training 
qualification  in  2016  reported  to  have  benefited 
from  work-based  learning  during  their  studies, 

6  is  free  of  charge  and  includes  a  national 
curriculum taught by graduate teachers. The  share 
of  children  aged  0-3  enrolled  in  formal  childcare 
was  above  the  EU  average  in  2017  (45.8 %  vs 
34. %).  Half  of  them  attended  public  centres. 
Childcare  expenses  for  those  below  three  are  tax 
deductible,  which  benefits  mainly  to  households 
paying  taxes (46).  However,  the  enrolment  rate 
varies  strongly  across  regions,  being  for  instance 
almost  four  times  higher  in  the  Basque  region 
compared to Ceuta (47). This reflects differences in 
participation  rates  across  regions,  especially  of 
women.  The  supply  of  publicly  funded  childcare 
places  varies  significantly  across  regions,  ranging 
from almost 30 % in the Canary Islands to almost 
90 % in Extremadura. The Government will allow 
to  spend  additional  EUR 330 
municipalities 
million in 2019 for building and upgrading public 
early childhood education and care facilities. 

Large  regional  disparities  persist  in  education 
and  training  outcomes.  The  rate  of  early  school 
leaving stood at 18.3 % in 2017, 6.3 pps. below its 
level in 2013, but still among the highest in the EU 
as  also  highlighted  by  the  Social  Scoreboard 
accompanying the European Pillar of Social Rights 
(see Box 4.3.1). The indicator varies greatly across 
regions (from 7 % to 26.5 %). It is especially high 
for  students  with  disabilities  and  non-EU  born 
residents (see Section 4.3.3). Grade repetition rates 
remain  high  thus  increasing  the  risk  of  drop-out, 
but  dropping  (8.8-11.4 %  in  secondary  school 
courses).  Students’  performance  in  basic  skills  is 
stable  at  around  the  EU  average  (OECD,  2016), 
but wide regional disparities persist (see European 
Commission  2018a).  The  Government  has 
upgraded the territorial cooperation Programme for 
Guidance  and  Reinforcement,  with  a  higher 
budgetary  allocation  for  2019;  new  measures  to 
promote  dual  vocational  education  and  training 
(VET) studies and teachers’ training to tackle this 
challenge.  Efforts  to  tackle  factors  behind  grade 
repetition  have  so  far  taken  the  form  of  ad  hoc 
interventions  with  limited  results,  in  particular  in 
schools  with  high  dropout 
rates.  Further 
investment  backed  by  an  integrated  strategy  may 
be required.  

(46)  In 2018, the central government introduced a tax deduction 
(up to EUR 1000) for expenses in formal childcare.  Some 
regions top up this deduction with additional schemes. 
(47)  Ministry of Education and Vocational Training. Number of 
institution 

children  attending  a  recognised  childcare 
divided by the number of children in the same age range. 

51 

 
                                                           
to 

training 

increase 

underperforming  the  EU  average.  In  addition, 
cooperation  between  vocational  education  and 
training  providers  and  local  employers  appears 
the  contribution  of 
to 
insufficient 
vocational  education  and 
local 
economic  development.  Recent  initiatives  seek  to 
improve  the  matching  between  initial  vocational 
education  and  training  and  labour  market  needs 
through  a  higher  involvement  of  the  business 
sector  and  a 
the  qualifications 
framework.  The  Government  approved  measures 
in  coordination  with  the  regions,  social  partners 
and  other  stakeholders  to  further  develop  and 
upgrade the dual vocational education and training 
system, promote work-based learning and raise the 
attractiveness  of  the  system.  Further  coordination 
may  ensure  that  all  regional  models  comply  with 
key  standards  for  dual  vocational  education  and 
training (OECD, 2018b).  

review  of 

Despite  high  tertiary  education  attainment, 
skills  supply  is  not  sufficiently  aligned  with 
labour  market  needs.  In  2017  Spain’s  rate  of 
tertiary  education  attainment  (41.2 %  of  people 
aged  30-34)  was  above  the  EU  average  (39.9 %), 
but  moving  away  from  its  Europe  2020  target 
(44 %).  However,  the  employment  rate  of  recent 
tertiary  graduates  (76.6 %)  is  well  below  the  EU 
average  (84.9 %).  At  the  same  time,  some  high-
value  added  sectors  (such  as  information  and 
communication  technology  and  high  value-added 
manufacturing)  have  difficulties  to  find  young 
the  relevant  skills.  Regional 
graduates  with 
disparities  exist  both 
in  higher  education 
attainment  and  in  the  employment  rate  of  recent 
graduates. The tertiary attainment rate (30-34 years 
old)  ranges  from  27 %  in  Ceuta  to  55 %  in  the 
Basque Country (2017). 

between 

universities 

Cooperation 
and 
businesses  remains  weak,  but  some  new 
initiatives  appear  promising.  The  Spanish 
universities  association  and  the  conference  of 
business  organisations  jointly  agreed  to  increase 
business participation in the universities’ decisions 
on curricula and teaching methods, with the aim of 
increasing 
university 
graduates (48).  The  Government  supported  the 
creation  of  the  CERVERA  Network  to  boost 

employability 

of 

(48)  See, the joint agreement between the Spanish Universities 
Association  (CREU)  and  the  Conference  of  Spanish 
Business Organisations (CEOE). 

4.3. Labour market, education and social policies 

knowledge  transfer.  However,  the  mobility  of 
students  and  academic  staff 
limited, 
academic  staff  lack  training’  opportunities,  the 
university governance is still rigid and the Offices 
for the Transfer of Research Outcomes face a high 
administrative burden. 

is  still 

Enrolment  in  adult  learning  remains  moderate 
with limited access. Participation in adult learning 
in  Spain  has  recently  improved  (9.9 %  in  2017 
compared  to  9.4 %  in  2016),  although  it  is  still 
below  the  EU  average  (10.9 %)  and  far  from  the 
EU target of 15 % by 2020. As highlighted by the 
benchmarking exercise on adult learning and skills 
(49),  the  participation  of  the  low  skilled  in  adult 
learning stands at 3.5 % for 2017, recovering from 
a  downward  trend  since  2010  (4.9 %),  and  is 
below  the  EU  average  (4.3 %).  Nevertheless,  the 
share  of  adults  receiving  guidance  on  learning 
opportunities is in line with the EU average (26 % 
vs  24 %  in  the  EU  in  2016).  There  are  still  no 
concrete  proposals  to  improve  the  evaluation  and 
validation  of  professional  skills.  The  Spanish 
qualifications framework was recently updated but 
the  training  of  in-company  mentors  involved  in 
dual  vocational  educational  and  training  could  be 
further developed (Cedefop, 2018). 

of 
for 

Significant  skills  mismatches  persist,  both  in 
terms  of  qualifications  and  field  of  study.  In 
Spanish  workers  were 
2015, 
19 % 
underqualified 
jobs,  22 %  were 
their 
overqualified.  Specialisation  in  fields  with  little 
labour  market  demand  often  leads  to  people 
accepting a job below their qualification level in an 
area unrelated to their studies (OECD, 2017). The 
Government  and  the  regions  are  implementing 
specific  programmes  to  develop  dual  vocational 
education  and  training,  but  further  investments 
may  help  to  ensure  that  vocational  education  and 
training  promotes  quality  and  high  skills  career 
pathways.  

in  significant 

to  address  regional  disparities 

Efforts 
in 
education  and  training  outcomes  have  not  yet 
improvements.  The 
resulted 
Sectorial Conference on Education,  which gathers 
representatives  from  the  central  government  and 
the  regions,  provides  a  framework  for  policy 
the  exchange  of  best 
through 
coordination 
regions. 
review  among 
practices  and  peer 

(49)  See European Commission 2018i for more details.  

52 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

modest  0.7 pps.  (Graph 4.3.4).  The  AROPE  rate 
varies  significantly  across  Spain.  More  than  one 
third of the population in Extremadura, the Canary 
Islands  and  Andalusia  are  at  risk  of  poverty  and 
social  exclusion,  while  the  rate  is  below  15 %  in 
Navarra and Rioja (EU-SILC, Eurostat). 

Graph 4.3.4:  At-risk-of-poverty or social exclusion rate and 

its components 

Source: Eurostat, EU-SILC. 

Disposable  income  inequalities  remained  high, 
even as low-income people moved back to work. 
In 2017, the income share of the richest 20%  was 
6.6  times  higher  than  that  of  the  20%  poorest 
households. This ratio is one  of the  highest in the 
EU and did not improve in comparison to 2016. At 
the  same  time,  income  inequalities  before  taxes 
and  transfers,  but  including  pensions  was  also 
among  the  highest  in  the  EU  but  significantly 
improved from 14.9 times in 2014 to 12.2 in 2017, 
as  a 
falling  unemployment.  The 
improvement  of  inequalities  before  redistribution 
thanks  to  better  labour  market  conditions  is 
therefore  not 
the  evolution  of 
inequalities after redistribution. 

result  of 

reflected 

in 

targeted  measures 

However,  it  has  not  met  often  in  recent  years. 
Besides, 
regions 
improve  educational  outcomes  have  so  far  only 
had small effects in improving the situation in the 
lagging regions (European Commission, 2018a).  

to  help 

to 

some  30 %  of 

Basic  and  advanced  digital  skills  levels  remain 
below  the  EU  average.  Despite  an  increasing 
number  of  Spaniards  going  online,  the  share  of 
individuals aged 16-74  with basic digital skills, at 
55 % in 2017, is still below the EU average (57 %) 
(Digital  Scoreboard,  2019).  Some  regions  have 
implemented  the  Digital  Competence  Framework 
and  recognised  the  level  of  digital  skills  of 
citizens.  Digital  inclusion  seems  to  be  highly 
linked  to  income  levels,  as  only  2 %  of  the  high-
income  households  have  never  used  internet, 
compared 
low-income 
households.  While 
the  number  of  science, 
technology, engineering and mathematics (STEM) 
graduates  is  on  the  rise  (21.6  higher  education 
graduates  per  thousand  inhabitants  aged  20-29, 
against  19.1  in  the  EU,  but  with  a  significant 
gender  gap), 
information  and  communication 
technology specialists still represent a low share of 
the workforce (2.9 % vs 3.7 % in the EU). In 2018, 
the  Government  launched  a  Training  Plan  in 
Digital  and  Technological  Competencies to  help 
science,  technology,  engineering  and  mathematics 
graduates  better  meet  employers’  demand  for 
information 
technology 
specialists.  The  Government  has  also  launched 
these 
initiatives 
graduates, with a focus on computer programming 
and  the  aim  to  achieve  a  higher  involvement  of 
schoolgirls in this field (50).  

the  number  of 

communication 

increase 

and 

to 

4.3.3.  SOCIAL POLICIES 

The  economic  recovery  continues  to  curb 
poverty, which however remains high. In the last 
three  years,  the  share  of  people  at-risk-of-poverty 
or  social  exclusion 
(AROPE)  decreased  by 
2.6 pps.,  down  to  26.6 % in  2017  (income  year 
2016). It remained, however, well above the 2008 
rate  and  EU  average.  The  decline  in  AROPE  is 
mainly  driven  by  the  significant  2 pps.  drop  in 
people living in quasi-jobless households down to 
12.8 %  in  2017.  Severe  material  deprivation  and 
the  at-risk  of  poverty  rate  decreased  by  a  more 

(50) Escuelas de Pensamiento Computacional. 

53 

0510152025303505060708091011121314151617% of total 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 

Graph 4.3.5:  At-risk-of-poverty or social exclusion rate by 

age group 

the  EU  average,  and  by  17.7 %  for  children,  i.e. 
20.4 pps.  below  the  EU  average.  This  partly 
reflects the low coverage and adequacy of income 
guarantee  schemes  and  family  benefits.  In  2016, 
the  share  of  poor  working  age  people  living  in  a 
jobless  household (51)  in  receipt  of  benefits  was 
among the lowest in the EU and more than 15 pps. 
below the EU average. 

Graph 4.3.6:  In-work poverty 

Source: Eurostat, EU-SILC. 

Labour  market  improvements  have  benefitted 
working  age  adults,  but 
in-work  poverty 
remains  high.  The  rate  of  people  at-risk-of-
poverty or social exclusion for working age adults 
decreased  as  unemployment  declined  further. 
However,  at  28.2 %  in  2017,  it  was  still  much 
above  the  pre-crisis  level.  It  was  also  nearly  12 
pps.  above  the  rate  for  the  elderly,  who,  unlike 
their younger peers, preserved their main source of 
income  (pensions,  see  Section  4.1)  during  the 
crisis  (see  Graph 4.3.5).  In  2017,  in-work  poverty 
remained unchanged at 13.1 %, among the highest 
rates  in  the  EU.  It  actually  increased  by  1.4 pps. 
for  employees,  a  large  share  of  whom  work  on 
temporary  contracts 
(see  Section 4.3.1  and 
Graph 4.3.6).  This  increase  was  offset  by  the 
strong decrease among the self-employed. In-work 
poverty  was  especially  high  and  rising  for 
temporary  workers  (23.1 %),  the  non-EU-born 
residents  (34.2 %),  lone  parents  (27.8 %)  and  the 
low  skilled  (21.4 %)  (EU-SILC,  Eurostat).  The 
measures to fight labour market segmentation and 
to increase the minimum wage may help reduce in-
work poverty, but their impact on employment and 
incomes remains to be seen.  

The  capacity  of  social  transfers  (other  than 
pensions) to reduce poverty remains among the 
lowest  in  the  EU,  especially  for  children.  As 
highlighted 
Scoreboard 
accompanying the European Pillar of Social Rights 
(Box 4.3.1),  social  transfers  reduced  the  risk  of 
poverty by 23.9 % in Spain in 2017, 8.5 pps. below 

Social 

the 

in 

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

and 

benefits 

clarified 

The  scope  of  the  announced  measures  to 
improve the effectiveness of the national income 
guarantee  schemes  remains  limited.  The  2018 
Budget  Law  established  that  common  criteria  for 
activation  should  apply  to  all  non-contributory 
unemployment 
that 
unemployment  benefits  can  be  topped  up  by 
minimum  income  schemes.  The  Universal  Social 
Card  came  into  force  in  October  2018  and  is 
intended  to  collect  information  on  all  benefits 
received  by  individuals  from  the  national  and 
regional  governments.  The  resulting  increased 
transparency  can  help  the  administrations  better 
target social benefits to those in need, as well as to 
monitor performance and extend better practices. 

More regions are setting a subjective right to a 
means-tested regional minimum income, but the 
portability  of  benefits  between  regions  remains 

(51)  Share  of  working  age  individuals  (aged  18-59)  receiving 
any  benefits  (other  than  old  age  or  survivors’  benefits) 
among  people  at-risk-of  poverty  and  living  in  households 
with very low work intensity. Social Protection Committee  

54 

051015202530354005060708091011121314151617% of population in each age groupChildren (<18y)Working age (18-64)Elderly (65+)05101520253005060708091011121314151617% of employedTotalTemporaryPart-time 
 
 
                                                           
4.3. Labour market, education and social policies 

limited.  Eligibility  for  regional  minimum  income 
is  linked  to  residence,  and  moving  to  another 
region  implies  loss  of  the  support.  Six  regions 
established  the  possibility  to  conclude  agreements 
with  other  regions  to  ensure  the  transfer  of  rights 
in  their  legislation,  but  so  far  only  two  regions 
started  to  negotiate  such  an  agreement.  While 
benefit  levels  increased  in  most  regions,  large 
variations  remain  in  their  adequacy  (Ministry  of 
Health,  Consumption  and  Social  Welfare,  2017). 
to  EUROMOD (52) 
According 
simulations 
performed  by  the  European  Commission  Joint 
Research  Centre,  one  out  of  five  potentially 
eligible  beneficiaries  actually  receive  regional 
minimum  income  schemes,  with  large  variations 
across  regions  (from  less  than  10 %  in  some 
in  others). 
regions 
Simulations  suggest  that  full  coverage  in  all 
regions would reduce the poverty gap (53) by 4 pps. 
down  to  27 %,  3  pps.  above  the  EU  average.  An 
increase in the amount of benefits would be needed 
to  further  reduce  the  poverty  gap  (particularly  in 
some regions).  

full  coverage 

to  near 

Children face one of the highest rates of risk-of-
poverty  or  social  exclusion  in  the  EU,  well 
above  other  age  groups.  The  risk  of  poverty  or 
social  exclusion  for  children  (0-18)  fell  to  31.3 % 
in  2017,  but  remains  very  high.  Children  with  a 
migrant background or with a lone parent face the 
highest  risks  of  monetary  poverty,  above  40 %. 
Even  when  parents  are  working,  children  face  a 
12.5 % risk of poverty, well above the EU average 
(8.3 %)  and 
(EU-SILC, 
Eurostat). A newly appointed High Commissioner 
to  fight  child  poverty  has  been  tasked  to  evaluate 
and  monitor  policies  and  promote  overarching 
strategies and national plans to fight child poverty 
are  under  discussion.  The  VECA  program 
launched in the summer of 2018 sets subsidies for 
school  meals,  leisure  and  culture  during  school 
holidays for vulnerable children. 

since  2013 

rising 

(52)  EUROMOD  is  the  tax-benefit  microsimulation  model  for 
the  EU.  It  simulates  individuals'  and  households'  benefit 
entitlements  and  tax  liabilities  (including  social  security 
contributions)  according  to  the  rules  in  place  in  each 
Member  State.  Simulations  are  based  on  representative 
survey  data  from  the  2016  European  Statistics  on  Income 
and  Living  Conditions  (EU-SILC)  and  cover  the  main 
elements  of  direct  taxation,  social  contributions  and  non-
contributory benefits. Incomes reported in the EU-SILC of 
2016 refer to 2015. 

(53)  The  at-risk  of  poverty  gap  is  the  difference  between  the 
median equivalised disposable income of people below the 
at-risk-of-poverty threshold and the threshold itself. 

the 

Social  spending  for  families  with  children  is 
poorly  targeted  and  remains  among  the  lowest 
in the EU, resulting in very low effectiveness. In 
2016,  public  spending  on  family  benefits  was 
almost  half  of  the  EU  average  (1.3 %  of  GDP  vs 
2.4 %). Per capita spending is also low (EUR 336 
vs  EUR 690  in  Purchasing  Power  Standards)  and 
declining.  In  2017,  16.4 %  of  children  (0-17) 
received 
child 
allowance.  This  is  only  half  of  the  children 
recorded  as  being  at  risk  of  poverty  or  exclusion. 
In 2017, 25.7 % of households with children (0-18) 
at  risk  of  poverty  reported  having  great  difficulty 
in paying for costs associated to formal education, 
against  17.2%  at  EU  level  (54).  In  2018,  the 
Government 
for 
families and increased the  minimum  threshold  for 
taxable  gross  salaries.  However,  tax  reliefs  for 
families do not benefit the poorest households.  

national  means-tested 

introduced  new 

tax  credits 

Older  adults  maintained  their  living  standards 
during the crisis. The at-risk-of poverty and social 
exclusion rate of people over 65 is increasing but, 
at  16.4 %  in  2017,  it  remains  10  pps.  below  the 
2008  level.  The  ratio  between  pension  and  late-
career  work  income  increased  from  0.42  to  0.69 
between  2008  and  2017  and remained  well  above 
the  EU  average  (55).  However,  the  at-risk-of 
poverty gap for older adults increased for the first 
time since 2008, from 13.9 in 2016 to 20.2 in 2017 
and  is  now  above  the  EU  level  (16.7).  This  is 
because 
lower 
pensions  moved  further  away  from  the  increasing 
relative  poverty  line.  The  level  of  retirement 
pension is on average lower for the self-employed 
and  women,  as  in  the  EU  (European  Commission 
2018h, and Box 4.1.1). 

for  pensioners  with 

income 

Social  support  for  people  with  disabilities  is 
effective  in  reducing  their  exposure  to  the  risk 
of  poverty.  Despite  relatively  low  employment 
rates,  their  at-risk-of-poverty  or  social  exclusion 
rate is close to EU level at 30.9 % (0.8 pps. above 
the  EU),  and  the  gap  between  people  with  and 
without disabilities is one of the lowest in the EU 
at 4.8 pps. In 2016, the poverty-reducing impact of 

(54)  EU-SILC,  Eurostat,  costs  of  formal  education  include 
tuition and exam fees, books, school trips, cost of canteen 
and others.  

(55)  Aggregate  Replacement  Ratio  (ARR)  as  the  ratio  of  the 
median  individual  gross  pensions  of  65-74  age  category 
relative  to  median  individual  gross  earnings  of  50-59  age 
category, excluding other social benefits. 

55 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

social  transfers  (other  than  pensions)  for  persons 
with  disabilities  was  33.5 %,  2.4  pps.  above  the 
EU  average.  However,  children  with  disabilities 
have a much higher risk of leaving school without 
a  diploma 
than  children  without  disabilities, 
among  the  highest  gap  in  the  EU  (ANED,  2018). 
The  provision  of  services  for  persons  with 
disabilities  also  varies  between  regions,  including 
for inclusive education programmes (Huete, 2017), 
and  for  job  search  assistance  (OED,  2018).  The 
mid-term  evaluation  of  the  National  Disability 
Strategy  (2014-2020)  showed  limited  progress, 
mostly in the area of employment (OED, 2016).  

The social integration of non-EU born migrants 
and  of  the  Roma  lags  behind.  People  born 
outside  the  EU  (8.8%  of  the  population  in  2017) 
face  a  much  higher  risk  of  poverty  of  exclusion 
(42.9%)  than  the  native  born,  a  much  larger  gap 
than in average in the EU (25.7 pps. vs 15.5 pps.) 
(EU-SILC, Eurostat). Despite an employment rate 
close  to  that  of  the  native  population,  they  face  a 
much  higher  risk  of  in-work  poverty.  The  gap  in 
early  school  leaving  between  native  and  children 
with a migrant background is also one the highest 
in  the  EU.  Spain  has  one  of  the  largest  Roma 
community in the EU (750 000 people, or 1.6% of 
the  population).  While  overall  they  tend  to  have 
better  education  and  health  outcomes  than  other 
Roma  communities  in  the  EU,  they  face  a  very 
high and rising risk of poverty and significant gaps 
in  social  outcomes  vis  à  vis  the  rest  of  the 
population  in  Spain  (Roma  Integration  Indicators 
Scoreboard,  2011-2016).  The  National  Roma 
Integration  Strategy  2012-2020  sets  a  political 
framework to address these challenges. 

Affordable  housing  is  a  challenge  for  tenants, 
low-income households with children, and non-
EU-born  people.  The  housing  costs  overburden 
rate  (56)  is  above  the  EU  level  for  low-income 
households  (38.4 %  vs  34.3 %),  households  with 
children (11.4 % vs 8.1 %), including those with a 
lone-parent  (30.6 %  vs  18.4 %).  Tenant  eviction 
orders  increased  by  4.3 %  in  2017  and  a  further 
7.9 %  year-on-year  in  Q3-2018  (General  Council 
for the Judiciary, 2018), in a context of increasing 
rents.  The  new  State  Housing  Plan  (2018 – 2021) 

(56)  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. 

includes  rent  subsidies  targeted  at  vulnerable 
groups,  promotion  of  public  housing  and  housing 
renovation.  The  most 
on 
homelessness  shows  that  between  2014  and  2016 
the number of people hosted in a shelter increased 
by 20.5 % (INE, 2017a). 

survey 

recent 

Energy poverty fell in 2017, and take-up of the 
new  social  tariff  is  slow.  In  2017,  the  share  of 
people  at  risk  of  poverty  who  are  unable  to  keep 
their  homes  adequately  warm  decreased  by  3.8 
pps.  to  19.4 %,  reaching  the  EU  average  but 
remaining  above  the  2008  level  (4.2  pps.)  (EU-
SILC, Eurostat). Following the reform of the social 
tariff  for  electricity  in  2017,  less  than  half  of 
former  beneficiaries  renewed  their  application  in 
2018, despite measures taken to broaden coverage 
in October 2018. The complexity of the procedure 
may  have  deterred  potential  recipients.  A  social 
tariff  to  cover  heating  expenses  during  the  winter 
was also introduced and is automatically granted to 
beneficiaries  of  the  social  tariff  for  electricity.  A 
new national strategy against energy poverty under 
preparation  has  already  been  subject  to  public 
consultation. 

Coverage  of  long-term  care  services  increased, 
including  amongst  those  with  lower  levels  of 
dependency.  In  2016,  public  spending  on  long-
term care as a share of GDP was less than half than 
the  EU  average  (0.8%  vs  1.8%).  In  2018,  the 
coverage  of  people  with  severe  dependency 
increased to 87.2% (+3.0 pps. in one year) (SAAD, 
2018).  The  coverage  of  people  with  moderate 
dependency increased by 15 pps. to 60.8 %, thanks 
to  the  increased  availability  of  complementary 
benefits  (such  as  telecare)  (CES,  2018b).  All 
regions  reduced  their  waiting  lists  to  different 
requests  and 
degrees,  but 
the  number  of 
beneficiaries  varies  greatly.  Since  2014, 
the 
number  of 
long-term  care  workers 
increased  but  their  share  for  population  over  65 
years  old  remains  below  the  OECD  average.  A 
2017 evaluation recommended to ensure sufficient 
funding,  improve  data  collection  and  assess  the 
gender  impact  of  care  provision  (Commission  for 
the  Analysis  of  the  Situation  of  Dependency, 
2017). 

formal 

Inequality  of  access  to  medical  care  is  low  on 
average,  with  exceptions  and  some  variation 
between  regions.  In  2017,  self-reported  unmet 
need  for  care  was  lower  than  in  the  EU  and  with 

56 

 
                                                           
4.3. Labour market, education and social policies 

Investment needs  

social 

Investment 

in  modern 

services  and 

Increased investment in education and training, 
employment 
inclusion 
policies  is  important  for  improving  Spain’s 
productivity  and  long-term  inclusive  growth. 
Promoting  better  access  to  quality  and  inclusive 
education  is  key  to  employability  and  social 
public 
mobility. 
employment services is a driver of quality jobs and 
smoother  labour  market  transitions.  High  at-risk-
of-poverty  or  social  exclusion  rates,  in  particular 
for children, call for investment in active inclusion 
infrastructure  (e.g.  social 
policies  and  social 
housing).  Actions  promoting 
labour  mobility, 
entrepreneurship  and  the  social  economy  can 
respond  to  depopulation  in  some  inland  regions. 
Integrating  the  different  strands  of  healthcare 
services,  while  strengthening  primary  care  may 
help  adapt  care  delivery  to  population  ageing, 
disability  and  chronic  conditions.  Investment 
should respond to regional needs and disparities in 
the  availability  and  effectiveness  of  public 
services. 

income  groups  (57).  The 
little  variation  by 
extension of access to health care to undocumented 
migrants  in  2018  filled  one  remaining  gap  in  this 
area. However, the gap for unmet dental care needs 
between  those  in  the  lowest  and  highest  income 
quintile  was  9.3  pps.  vs  5.3  pps.  at  EU  level.  In 
addition,  regional  disparities  in  care  delivery 
persist,  notably  in  the  use  of  evidence-based 
procedures  in  secondary  care  and  in  the  rational 
use  of  medicines  (Bernal  et  al,  2018).  There  are 
increasing  shortages  of  nurses  and  general 
physicians  in  primary  care  and  long-term  care 
regions.  The 
in 
services,  especially 
widespread  use  of  part-time  and 
temporary 
contracts  and  the  decline  in  salaries  may  have 
contributed  to  the  outflow  of  doctors  and  nurses 
seeking  employment  abroad.  These  shortages  are 
likely to further increase, as almost one third of the 
doctors are expected to retire within the next 10 to 
15 years, in particular general practitioners.  

some 

Rapid  population  ageing  and  growing  long-
standing  disability  and  chronic  conditions 
challenge  current  healthcare  delivery.  Despite 
the  increasing  pressure  on  primary  care,  public 
spending  on  hospitals  represents  an  increasing 
share  of  total  public  spending  to  the  expense  of 
primary  care.  The  relatively  high  share  of 
avoidable hospital admissions in Spain (6.3 vs 5.5 
EU  average),  also  illustrates  the  potential  to 
increase the role of primary care in the prevention 
and  management  of  acute  chronic  conditions  (58) 
(OECD  and  the  European  Union  2018).  Other 
challenges  for  primary  care  include  the  growing 
care  needs  associated  to  lifestyle  risk  factors  and 
chronic  conditions;  and 
to  ensure 
continuity of care across care providers  (Bernal et 
al, 2018). The lack of interoperability of electronic 
systems  hampers  the  efficient  use  of  available  e-
health  solutions,  as  well  as  the  coordination  and 
continuity  of  care,  especially  in  some  regions 
(Oderkirk, 2017). 

the  need 

(57)  The benchmarking exercise in the area of minimum income 
also  shows  that  the  gap  in  unmet  needs  for  medical  care 
between  people  18-59  at  risk  of  poverty  from  very  low 
work  intensity  households  and  the  rest  of  the  population 
aged 18-59 is among the lowest in the EU. For details, see 
European Commission 2018i.  

(58)  Including  diabetes, hypertension,  heart  failure,  COPD  and 

bronchiectasis, and asthma. 

57 

 
                                                           
4.4.  COMPETITIVENESS, REFORMS, AND INVESTMENT 

4.4.1.  PRODUCTIVITY, COMPETITIVENESS, AND 

INVESTMENT * 

freight 

including 

long-term 

innovation, 

sustainable 
Supporting  Spain’s 
growth  requires  investments  to  foster  and  help 
absorb 
in  small  and 
medium-sized enterprises, as well as to promote 
resource  efficiency,  upgrade  rail  infrastructure 
for 
transport  and  extend  energy 
connections  with  Europe.  Further  investment  in 
both  public  and  private  R&D,  as  well  as 
digitisation  and  digitals  skills,  would  bolster  the 
innovation  capacity  of  the  economy,  if  acting  in 
synergy  with  investment  on  education  and  labour 
market 
The 
(see 
improvement of rail connections  and logistic  hubs 
allowing  for  freight  transport  with  ports  and  the 
completion  of  the  Trans-European  Networks  for 
Transport,  as  well  as  of  energy  interconnections 
with Europe are crucial to improve  Spain's access 
to  markets,  both  within  the  country  and  with  the 
rest  of  Europe.  In  allocating  investment,  due 
attention has to be given to regional disparities and 
regions'  specific  characteristics, 
the 
specific needs of rural areas.  

Section 4.3). 

including 

policies 

Productivity and competitiveness 

employment 
improvements 

Productivity  in  Spain  remains  below  that  of 
other  large  euro  area  countries.  During  the 
crisis,  growth  in  labour  productivity,  measured  as 
Gross Value Added or GDP per employee, picked 
up,  but  largely  as  a  result  of  labour  shedding. 
Productivity  has  been  growing  more  moderately 
since then, broadly in line with the euro area, and 
growth, 
simultaneously  with 
underscoring  genuine 
the 
in 
efficiency  of  production.  The  improvement  in  the 
quality  of  investment  supported  these  positive 
developments 
(Section 1).  However,  Spain's 
productivity  is  still  comparatively  low, though  it 
displays some regional variation and large sectoral 
disparities.  (59)  In  sectors  such  as  agriculture, 
construction,  accommodation,  food  services  and 
telecommunications,  labour  productivity  is  higher 
in  Spain  than  in  some  other  large  euro  area 
countries  (see  European  Commission,  2018a,  pp. 
50).  In  terms  of  growth,  labour  productivity  has 
grown  faster  in  manufacturing  than  in  services. 

(59)  Apparent labour productivity by hour worked is about 12% 
lower  than  the  EU-15  average  in  PPS  and  21%  lower  in 
nominal terms 

Again, there is quite large variation within sectors, 
and  some  service  sectors  such  as  information  and 
communication technologies have also seen strong 
productivity growth.  

The  large  presence  of  small  companies  in  the 
economy and  a low innovation capacity largely 
explain  Spain's  productivity  gap.  Small 
companies  tend  to  record  lower  productivity  than 
large ones, mainly due to scale effects and limits to 
their  absorptive  capacity  for  innovation.  In  Spain, 
the  productivity  gap  between  small  and  large 
companies  is  greater  than  in  other  large  Member 
States.  The  gap  is  more  salient  in  sectors  such  as 
professional 
in 
manufacturing-related  activities  (see  Graph 4.4.1 
is 
and  European  Commission  2018a).  This 
compounded by the fact that companies tend to be 
less  productive  than  their  counterparts  in  other 
large  Member  States  at  all  size  levels,  and  is 
reflected  in  Spain's  comparatively  low  share  of 
innovative firms across sectors, as measured by the 
2018 European Innovation Scoreboard.  

services, 

smaller 

and 

Graph 4.4.1:  Productivity gap, ES v. EA-3 in current prices 

EA-3: unweighted average of DE, FR, IT. 
Source: Eurostat. 

cost-competitiveness 
are 
improvements 

and 
some 
Regained 
structural 
supporting 
Spanish exports, but the small average firm size 
limits export capacity. The increase in exports of 
both  goods  and  services  since  the  crisis  (see 
Section 3)  has  been  broad-based  across  sectors, 

58 

-50%-40%-30%-20%-10%0%10%20%From 0 to 9personsemployedFrom 20 to 49personsemployed250 personsemployed ormoreIn 000s EUR (EA-3=100)Compared to national / EA-3 averageShare of companies (difference with EA-3 average) 
 
                                                           
 
4.4. Competitiveness, reforms, and investment 

products 

chemical 

especially 

goods  exports  consist  mainly  of  intermediate 
goods, 
and 
equipment  goods,  and  motor  vehicles  (the  latter 
accounting  for  around  17 %  of  total  exports). 
Although some of these products are characterised 
by medium to medium-high technological content, 
Spanish  exporters  have  tended  to  specialise  in 
medium-low quality goods (Bank of Spain, 2019b) 
with  high  price-elasticity  (European  Commission, 
2017a  and  2016b).  In  addition,  contrary  to  other 
large euro area Member States, Spain is becoming 
more  present  in  the  downstream  part  of  global 
to 
value  chains,  which 
competition 
(see 
Box 4.4.1).  

from  emerging  economies 

is  more  exposed 

Graph 4.4.3:  Exports by total exported value by company 

Source: ICEX 

Maintaining  external  competitiveness  is  likely 
to  be  a  challenge  unless  productivity  growth 
and non-cost competitiveness can be improved. 
Spain's competitiveness gains in recent years have 
largely  relied  on  wage  restraint,  but  maintaining 
external competitiveness could become a challenge 
unless  it  is  supported  by  improved  allocative 
efficiency  and  productivity  growth.  Structural 
impediments  to  the  free  flow  of  the  factors  of 
production and improved efficiency of production, 
ranging  from  skill  gaps  to  the  low  innovation 
performance  and  fragmented  product  and  service 
market  regulation  are  key  drivers  of  Spain's 
relatively  low  score  in  allocative  efficiency  and 
productivity. Against this backdrop, the set-up of a 

including  some  professional  services  (European 
Commission  2018a),  and  while  the  EU  still 
accounts for the bulk of Spanish exports, there has 
been  a  process  of  geographical  diversification  to 
the  US,  Asia,  Africa  and  Latin  America  (Bank  of 
Spain  2019b).  From  2009  to  2018,  Spain's  cost 
competitiveness  against  the  EU  –  as  measured  by 
the  real  effective  exchange  rate  -  improved  by 
around 14 % based on unit labour costs and around 
5 %  based  on  export  prices  (Graph 4.4.2).  At  the 
same  time,  the  number  of  regular  exporters  has 
continued  to  increase  during  2018,  and  is  now 
28 %  above  its  2010  level,  with  an  increased 
number  of  exporting  small  and  medium-sized 
companies. Still, much of the increase in exported 
value  in  recent  years  was  realised  by  very  large 
exporters  (Graph 4.4.3).  These  are  normally  large 
companies, which have on average recorded more 
favourable  unit  labour  cost  developments  than 
smaller  ones  due  to  higher  productivity  growth 
(see below and European Commission, 2017a and 
2016b). 

Graph 4.4.2:  REER based on unit labour costs 

Source: Ameco 

in 

of 

Spanish exports are concentrated in goods that 
compete  mainly  on  price,  although  there  are 
non-cost 
signs 
improvements 
competitiveness.  Exports  are  concentrated 
in 
medium-high technology and  medium-low quality 
products  that  compete  mainly  on  price  (European 
Commission,  2017a).  However,  there  are  signs  of 
that  Spanish  exports  become  somewhat 
less 
sensitive  to  price  competition  in  recent  years 
(European  Commission,  2018a).  Apart  from  a 
large share of food and primary products, Spanish 

59 

70809010011012013014015000010203040506070809101112131415161718*1999=100ESEA19EU2805000010000015000020000025000030000020112012201320142015201620170-5K €5-50K €50K-0.5M €0.5M-5M €5M-50M €x >= 50M€ 
 
 
4.4. Competitiveness, reforms, and investment 

national  Productivity  Board,  as  recommended  by 
the  European  Council  (European  Council,  2016), 
will  help  design  and 
to 
comprehensively address the complex productivity 
drivers.  Furthermore,  in  order  to  ensure  a  further 
structural  positive  contribution  of  the  external 
sector  to  economic  growth,  the  “Strategy  for  the 

implement  policies 

internationalization of the Spanish economy 2017-
2027”  aims  to  enhance  the  presence  of  Spanish 
companies  abroad,  notably  small  and  medium-
sized  companies.  The  strategy  is  implemented 
through  biennial  action  plans,  the  first  of  which 
(2017-18) has just been completed.  

60 

 
4.4. Competitiveness, reforms, and investment 

Box 4.4.1: Global Value Chains: the role of Spain 

The production of goods and services is increasingly taking place across the globe, with the different stages 
of  the  production  process  being  located  across  several  countries.  Such  increased  fragmentation  entails  an 
increased  volume  of  trade  in  intermediate  goods  and  services  and  increased  divergence  between  what  a 
country sells abroad and what a country produces and adds in its exports.     

The analysis in this box looks at Spain's participation in Global Value Changes (GVCs), based on Trade in 
Value Added (TiVA) indicators developed by the OECD (1), which provide a more accurate picture of the 
flows of goods and services within GVCs than conventional measures of international trade. Measured on 
the  basis  of  the  aggregate  indicator  developed by  Koopman  et  al.  (2010)  (2),  Spain's  integration in  GVCs 
increased  between  2009  and  2014,  but  remains  below  the  pre-crisis  level.  The  largest  European  countries 
have followed a similar path. However, unlike for the other largest EU countries, the decomposition of the 
index  by  source  shows  that  Spain  tends  to  be  positioned  in  the  downstream  part  of  GVCs  –  that  is,  it  is 
taking a backward position, whereby the import content of their exports is high (often as a result of assembly 
activities as in the automotive industry) (Graph 4.4.1.1.a). Such import content of exports – or the Foreign 
Value Added (FVA) embodied in exports – was at 27 % of total gross exports in 2014, down from 29 % in 
2007. (Graph 4.4.1.1.a). 

A  sectoral  breakdown  shows  that  a  significant  share  of  the  domestic  value  added  (DVA)  in  total  exports 
comes  from the services sector (Graph 4.4.1.1.b). In gross terms, exports of services barely accounted for 

61 

Source: INE, ITiva-OECD and own calculations.Graph 4.4.1.1: Global value chains indicatorsGraph 4.4.1.2: Change in DVA of Spanish exports (2014-2007): a shift share analysis (2)(3)(1)  The participation index is defined as the sum of backward and forward participation. The backward participation refers to the FVA in a country's exports and the forward one is the DVA of a country's exports that are re-exported to a third country. (2)  The shift share analysis allows to breakdown DVA changes in three components : i)  changes in exports's composition (the between-component); ii) variations in the domestic value added of each sector's exports (the within-component); and, iii) the interaction or residual  component. (3) Classification of exports according to its skilled content followed the International Standard Industrial Classification (ISIC rev. 3 a).01020304050607080DEFRITANLDESUKUSAJapanCHN1.a: Participation in global value chains: 2007 and 2014 (1) (% on gross exports)BackwardForward-4.0-3.0-2.0-1.00.01.02.03.0DVA change 14-07The between-componentThe interaction componentThe within-component2.a: Total exports(pp contribution to change )0.05.010.015.020.025.0goodsservices2014. Gross exports (% GDP)2014. VA exports (%GDP)1.b: Exports of goods and services in gross and valueadded terms (% of GDP)-1.0-0.50.00.51.01.52.02.53.02.b: Services exports (pp contribution to change ) 
 
4.4. Competitiveness, reforms, and investment 

40 % in 2014 of total Spanish exports; however, when international trade is measured in value added terms, 
services account for almost 50 % of total exports, or 24.8 % of GDP. These shares increased substantially 
between  2004  and  2017  (by  6.6 %  of  GDP),  more  than  in  Germany,  France  or  Italy.  The  domestic  value 
added of services in Spanish exports is to a large  extent indirect: in 2014, around 30 % of  services'  value 
added was embodied in the exports of other sectors (i.e. manufacturing).  

A shift share analysis shows that the increase in the domestic value added content of gross exports is mainly 
explained by an increase in the domestic value added in each individual sectors' exports, but also to some 
extent  to  changes  in  the  composition  of  Spanish  exports  towards  high  domestic  value  added  sectors.  The 
services sector has contributed the most to the increase in the domestic value added content of total exports, 
mainly driven by wholesale and retail trade, as well as R&D services and Other business activities. Within 
manufacturing, only the low-tech industries have had a positive impact on the domestic value added content 
of Spanish exports.  

(1)  This box is based on the 2016 edition of TiVA indicators. On December 2018 the OECD published the 2018 edition, 

although the level of some of the indicators has changed, the qualitative messages remain unchanged. 

(2)  Koopman  et  al.  (2010):  "Give  credit  where  credit  is  due:  tracing  value  added  in  global  production  chains".  NBER 

working paper. 

Research, innovation and digital economy 

share  of  value  added  of  knowledge  intensive 
activities (60). 

In 

2017, 

Spain's 

In  an  EU  comparison,  Spain  is  a  moderate 
innovator. 
innovation 
performance  measured  on  the  basis  of  the  2018 
European Innovation Scoreboard increased relative 
to the EU average in 2010, but remains below the 
EU  average.  The  summary 
index 
incorporates  a  particularly  low  score  on  firm 
investments  in  innovation  expenditures;  linkages 
innovative  small  and  medium-sized 
between 
companies  and  between  academia  and  businesses; 
firms.  Spain  also 
and  share  of 
underperforms 
terms  of 
knowledge-intensive services.  

innovative 
the  EU  average 

innovation 

in 

and 

innovation 

in  R&D  and 

Spain's 
productivity 
performance  is  hampered  by  a  lack  of  stable 
investment 
innovation.  The 
investment  gap  in  intangible  assets  compared  to 
the  EU,  notably  for  private  R&D  investment,  has 
been  widening  in  recent  years,  when  both  public 
and private R&D intensity in Spain have been on a 
(Graph 4.4.4).  Overall  R&D 
declining 
expenditure accounted for 1.20 % of GDP in 2017, 
and the national 2 % R&D intensity target for 2020 
will  not  be  reached  unless  these  trends  are 
drastically  reversed.  The  size  of  the  innovation 
fabric in Spain is small compared to the size of its 
economy,  and  this  hampers  the  structural  change 
towards  a  knowledge-based  economy.  Spain  is 
below  the  EU  average  both  in  employment  and 

trend 

Business  innovation  capacity  is  constrained  by 
low  R&D  investment  by  large  firms,  and  low 
absorption capacity by small firms. The Spanish 
(SMEs) 
small  and  medium-sized  enterprises 
account  for  around  50 %  of  the  R&D  investment 
done  by  firms,  higher  than  the  EU  average 
(22.7 %) (61).    However,  small  and  medium-sized 
financial  and  human 
companies  have 
resources, and more limited absorptive capacity for 
knowledge and technology than large firms. At the 
same  time,  large  firms  in  Spain  have  lower 
their  European 
innovation 
flows  among 
counterparts.  Weak  knowledge 
stakeholders could be linked to lower investment. 

investment 

than 

less 

The  public  research  and  innovation  system 
suffers  from  underinvestment  and  a  low  take-
up  of  public  funds  available.  Public  R&D 
investment is the lowest in almost a decade (Graph 
4.4.4). Furthermore, the execution of the dedicated 
public  research  and  innovation  budget  lines  was 
very  low,  at  around  30 %,  in  2017,  due  to  high 
reliance  on  credit-based  financial  instruments  that 
have  had  low  take-up.  The 
level  of  public 
investment  for  R&D  remains  unchanged  in  the 
absence of a new Budget Law for 2019. 

(60)  Share  of  value  added  in  high  tech  knowledge  intensive 
services  is  4.4%  compared  to  5.1 %  in  EU.  It  is  4.6 %  in 
medium-high-tech manufacturing, compared to 5.8% in the 
EU (OECD, 2017).  

(61)  Eurostat: BERD performed by SMEs in % of GDP/BERD 

in % of GDP 

62 

 
 
                                                           
4.4. Competitiveness, reforms, and investment 

Graph 4.4.4:  Evolution of business R&D intensity and public 

R&D intensity 2000-2017 

still pending. Finally, there are no policies to direct 
students  towards  intermediate  technical  fields, 
where there is a lack of qualified personnel. 

now 

previously 

The  quality  and  structure  of  the  Spanish  R&D 
system is being improved, but  the  coordination 
and  synergies  between  national  and  regional 
policies  need  to  be  reinforced.  The  recently 
created  Ministry  of  Science,  Innovation  and 
Universities 
split 
covers 
competences,  allowing  for  a  more  comprehensive 
vision  of  policy  needs  and  synergies  in  policy-
making.  There  has  been  steady  growth  over  the 
past decade in Spain's scientific quality – measured 
by  the  share  of  domestic  publications  that  are 
among 
top  10%  most  cited  scientific 
publications  worldwide  -  and  in  the  openness  of 
the  Spanish  research  system -  as  measured  by  the 
share  of  international  co-publications  in  total 
publications,  where  Spain  now  is  above  EU 
the  Spanish  Research 
average 
Agency,  created  in  2015,  is  now  operational  and 
manages public research grants. Efforts to improve 
coordination  between  national  and 
regional 
initiatives in research and innovation policies  will 
need time to show an impact (Section 4.4.3). 

(62).  Finally, 

the 

There  have  been  limited  steps  to  develop  an 
evaluation  culture  for  public  research  and 
innovation  policy.  The  Spanish 
Innovation 
Agency  (CDTI)  has  commissioned  an  impact 
evaluation of the innovation programmes, but most 
of  the  public  research  and  innovation  initiatives 
lack systematic assessments of quality, impact and 
efficiency  using  comparable  methodologies.  The 
Government 
is  developing  a  more  ambitious 
information  system  on  science,  technology  and 
innovation  intended  to  facilitate  monitoring  and 
evaluation.  The  system  will  include  regional  data 
and will be open to regional administrations. 

and 

Spain does not fully exploit the growth potential 
offered  by  digitisation,  but  is  taking  some 
positive  steps.  Spain  has  a  lower  number  of 
information 
technology 
specialists  in  the  work  force  than  the  EU  average 
(2.9 %  vs.  3.7 %),  and  one  in  five  Spanish 
companies  (both  large  and  small  and  medium-
sized  enterprises)  report  serious  difficulties  in 
hiring  these  specialists.  In  addition,  small  and 

communication 

(62)  International  publications  as  a  %  of  total  number  of 
publications (56 % in Spain vs. 49 % in the EU), Eurostat 

(1) Business R&D intensity: business enterprise expenditure on 
R&D (BERD) as % of GDP.  
(2) Public R&D intensity: government intramural expenditure 
on R&D (GOVERD) plus higher education expenditure on 
R&D (HERD) as % of GDP.  
(3) Business R&D intensity: breaks in series between 2002 and 
the previous years and between 2008 and the previous 
years. 
Source: Eurostat. 

in  2016)  and 

Human resources remain a crucial challenge for 
the  Spanish  research  and  innovation  system. 
Despite  Spain’s  high  number  of  science  and 
technology graduates and the relatively high share 
of  the  population  with  tertiary  education  (see 
the  number  of 
Section 4.3.2  on  education), 
researchers  in  Spain  is  below  the  EU  average 
(2.8 %  vs  3.9 % of  the  labour  force  in  2016),  and 
decreasing.  The  share  of  researchers  employed  in 
the  private  sector  is  also  lower  than  the  EU 
the 
average  (37 %  vs.  49 % 
cooperation  between  business  and  science  is  very 
limited.  In  the  public  sector,  the  number  of 
researchers  has  also  decreased,  and  their  average 
age has increased (European Commission, 2017c). 
Recent measures were put in place to address this, 
notably  the  obligation  not  to  let  the  number  of 
researchers decline further in the public sector and 
increasing  the  number  of  grants  in  post-doctoral 
programmes.  Steps  to  reduce  the  number  of 
temporary 
research 
organisations  have  been  taken  in  early  2019. 
in 
However,  reforms 
research 
in 
universities  and  public  research  organisations  are 

to  consolidate  careers 
track'  system 

through  a 

contracts 

'tenure 

public 

in 

63 

0,30,40,50,60,70,8000102030405060708091011121314151617% of GDPPublic R&D intensityBusiness R&D intensity 
 
                                                           
4.4. Competitiveness, reforms, and investment 

After  their  temporary  reduction  during  the 
financial  crisis,  CO2  emissions  from  transport 
are on the rise and they are projected to reach 
pre-crisis levels by 2030.  This sector is currently 
the  largest  single  source  of  these  emissions.  A 
transition  to  cleaner  and  more  effective  modes  of 
transport  requires  in  particular  a  more  ambitious 
network  of  charging  points  for  electric  vehicles, 
integrated  urban 
the 
deployment  of  Intelligent  Transport  Systems’ 
technologies.  Since 
the  end  of  2017,  new 
initiatives on alternative energy vehicles have been 
taken,  including  incentives  to  the  purchase  of 
vehicles  and  investment  support  for  the  provision 
of new charging points.  

transport  systems  and 

renewables 

Attracting  investment  into  renewable  energy 
and energy efficiency is crucial to meet Spain's 
2020  targets.  With  a  renewable  energy  share  in 
total energy consumption of 17.5 % in 2017, Spain 
is  above  its  indicative  trajectory  to  meet  its  2020 
binding 
(20 %).  However, 
target 
further investments will be needed to fully achieve 
that  target,  in  particular  considering  that  the 
trajectory  becomes  steeper  in  the  last  years  of  the 
decade.  As  regards  energy  efficiency,  latest  data 
show consecutive annual increases of primary and 
final energy consumption  in  Spain, putting at risk 
the  achievement  of  the  national  energy  efficiency 
targets.  75 %  of 
the  estimated  additional 
investments  needs  in  energy  efficiency  lie  in 
buildings, and in particular the residential segment 
(High-Level Expert Group on Sustainable Finance, 
2018, pp. 59).  

the  Energy  Union, 

In its forthcoming National Energy and Climate 
Plan (66),  Spain  will  provide  an  overview  of  its 
investment  needs  until  2030  for  the  different 
dimensions  of 
including 
renewable  energy,  energy  efficiency,  security  of 
supply and climate  mitigation. The information  to 
be  provided,  including  in  the  forthcoming  draft 
plan, should further contribute to the identification 
and  assessment  of  energy  and  climate-related 
investment needs for Spain. The Government also 
announced  its  intention  to  propose  a  new  Law  on 
Climate Change and Energy Transition in the first 
half  of  2019,  which  would  establish  the  legal 

(66)  To  be  adopted  by  31  December  2019  in  line  with  the 
Regulation  on  the  Governance  of  the  Energy  Union  and 
Climate  Action  [Regulation  (EU)  2018/1999  of 
the 
European  Parliament  and  of  the  Council  of  11  December 
2018] 

lag 

behind 

enterprises 

medium-sized 
big 
companies  in  digitisation,  with lack of knowledge 
and technical skills among employees representing 
main  barriers.  In  response,  the  strategy  ‘Industria 
Conectada  4.0’,  adopted  in  2015,  has  launched 
several  actions 
to  boost  digitalisation  among 
companies  (63). The  Spanish  Digital  Agenda  dates 
from 2013 and plans to update it focus on specific 
issues.  The  Government  is  currently  working  on 
the  Strategy  “Spain  Start-Up  Nation”,  an 
overarching  strategy  to  embed  innovation  and 
digitalisation  in  all  aspects  of  economy  and 
society. This strategy would include a new plan for 
infrastructure; 
the 
investment 
technologies; 
in  enabling  digital 
programs to promote skills and talent, or a national 
strategy on Artificial Intelligence (64). Spain is also 
committed  to  the  advancement  of  new  digital 
technologies via EU-coordinated programmes (65).  

deployment 

digital 

of 

significant 
the 

in 
investments 
Despite 
infrastructure, 
take-up  of  high-speed 
connections  remains  low,  as  only  30  %  of 
Spanish  households  subscribe 
to  ultrafast 
broadband.  On  the  other  hand,  fibre-to-home 
subscriptions  have  overcome  other  technologies 
(cable  and  DSL).  Regarding  5G  deployment, 
operators  as  well  as  public  authorities  are 
preparing  the  ground  with  pilot  projects.  3,4-3,8 
GHz  band  is  already  assigned  and  free  for 
providing  5G  services  and  a  700  MHz  auction  is 
expected in early 2020.  

Sustainable growth 

Spain is on track towards its Europe 2020 CO2 
emissions  targets.  Emissions  from  sectors  not 
covered by the EU Emission Trading System were 
reduced by 15.3 % between 2005 and 2017, which 
is  above  its  10 %  reduction  target.  According  to 
the  latest  national  projections,  the  2020  target  is 
expected  to  be  exceeded  by  a  margin  of  9.9  pps. 
The 2030 target of -26 %, however, is expected to 
be missed by 9.9 pps. if no further action is taken.  

(63)  Such 

as 

a 

self-assessment 

tool 

for 

enterprises 

(https://hada.industriaconectada40.gob.es/hada/register) 
(64)  In  addition,  new  initiatives  such  as  the  announced  Retail 
Modernisation Plan 2019-2020 or a foreseen “Strategy for 
sustainable 
innovation  and 
digitisation specific economic sectors. 

tourism”  will  promote 

(65)  Euro  HPC  Joint  Undertaking,  European  Blockchain 
Partnership,  declaration  on  cooperation  on  Artificial 
Intelligence 

64 

 
                                                           
                                                           
4.4. Competitiveness, reforms, and investment 

framework  of  the  energy  transition  and  the  main 
targets and goals in this field. 

being  adopted,  regional  strategies  exist  or  are  in 
the  pipeline  and  a  pact  on  circular  economy  was 
signed in 2017 by more than 300 stakeholders. 

The  circular  economy  is  also  receiving  greater 
policy  attention  in  Spain.  A  national  strategy  is 

65 

 
4.4. Competitiveness, reforms, and investment 

Box 4.4.2: 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 in recent years, led by business investment, and is now slightly above the euro area 
average. Non-construction investment (11 % of GDP in 2018) now represents a higher share of GDP than at 
any time before, led by the strength of equipment investment. However, investment in intangibles remains 
below the euro area average, despite steady growth even during the crisis. Construction investment has been 
growing strongly since 2014 but from very low levels, and, is still only at 61% of its 2007 pre-crisis peak 
volume. 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. Selected barriers to investment and ongoing of reforms 

Major barriers to investment in Spain are reported to be general uncertainly (81 %), and business regulations 
(79 %),  both  above  the  EU  average.  (1)  Energy  costs  (72 %)  and  availability  of  skilled  staff  (64 %)  are 
reported to be important barriers, but the latter less so than in the EU.  Labour market regulations are more 
likely to be barriers for SMEs. The satisfaction with the level of external finance by Spanish firms is similar 
to the EU, and they tend to rely less on external finance. In Spain, both Instituto Oficial de Crédito (ICO) and 
the  regional  development  banks  act  as  both  as  public  bank  and  provide  public  financing  of  particular 
activities, such as the promotion of exports.  

Selected investment barriers 

1. Skills mismatches constrain productivity growth and innovation (see Sections 4.3.1, 4.3.2, and 4.4.1). 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, 
because of lack of cooperation between universities and because small and medium-sized companies have a 
limited  capacity  to  engage  with  the  higher  education  system  and  invest  in  training.  Whereas  secondary 
vocational educational training is being strengthened and promoted, enrolment rates are still low.  

2.  Restrictive  regulations  continue  to  discourage  investment  (see  Section 4.4.4).  Regulatory  fragmentation 
across regions hampers economic activity and the commitment to implement the Law on Market Unity has 
produced  few  tangible  results.  No  proposals  to  reform  professional  services  have  been  presented, keeping 
mark-ups and entry barriers high in economically important professions. Measures to eliminate unnecessary 
size-contingent regulations that prevent firms from growing are being studied, but no concrete actions have 
been  taken.  Policies  designed  to  support  R&I  investment  have  a  limited  impact,  and  public-private 
cooperation remains insufficient.  

1 EIB Investment Survey, Spain (2018).  

66 

 
 
 
4.4.2.  MARKET INTEGRATION FOR PRODUCTS 

AND SERVICES  

Regulatory framework  

the 

Restrictiveness  and 
fragmentation  of 
regulation  within  Spain  prevent  companies 
from  benefiting  from  economies  of  scale. 
According  to  the  According  to  the  OECD  intra 
EEA Services Trade Restrictiveness Index  (OECD 
2019),  the  level  of  regulatory  restrictiveness  in 
Spain is  higher than the Single Market average in 
sectors such as architecture, engineering, legal and 
computer services. Barriers, often originating from 
the  fragmentation  of  the  Spanish  market,  restrain 
the 
economic  dynamism, 
competitiveness  of  the  economy.  According  to 
2015 data, churn rates (that is, the sum of the birth 
and  death  rates  of  enterprises)  remain  low  in 
sectors such as legal, accounting, architecture, and 
real 
introduced 
activities.  Recently 
legislation  on  private-hire  vehicles,  granting 
regional  and  local  authorities  normative  power  to 
regulate  these  services,  provides  an  illustration  of 
regulatory  fragmentation  potentially  leading  to 
restrictions in the provision of services.  

limiting 

estate 

turn 

in 

Stronger and sustained cooperation between the 
national  and  regional  governments  would 
improve  the  implementation  of  the  Law  on 
inter-sectoral 
Market  Unity.  The 
conferences 
is  slowly  being  reinforced,  but 
stronger  and  sustained  cooperation  between 
national  and  regional  governments  is  needed  to 
improve the implementation of this law.  

role  of 

to 

the 

According 

Restrictions  in  retail  services  remain  high.  The 
autonomous communities regulate the retail sector 
and  there  are  differences  in  their  regulatory 
Retail 
approaches. 
Restrictiveness  Indicator  (European  Commission 
2018f),  Spain  is  among  the  ten  most  restrictive 
Member  States  for  setting  up  retail  premises. 
Administrative simplification to remove the double 
authorisation  that  is  still  in  force  –  in  law  or 
practice  – 
regions  could  make 
authorisation  procedures  more  efficient.  Spain  is 
also  one  of  the  most  restrictive  Member  States 
when  it  comes  to  operational  restrictions,  such  as 
shop-opening  hours  and  sales  promotions.  In 
addition,  a  retail  specific  tax  based  on  the  selling 
space  imposed  on  large  retailers  in  some  regions 
affects  the  competitiveness  of  brick  and  mortar 
retailers  vis-à-vis  e-commerce,  which  is  gaining 
ground in Spain.  

in  certain 

The  Law  on  Market  Unity  remains  an 
important tool to facilitate the free movement of 
goods  and  services  and  the  establishment  of 
economic  operators  throughout  Spain,  while 
further  work  on  its  implementation  is  needed. 
The  2017  rulings  of  the  Constitutional  Court 
declared  null  and  void  certain  provisions  giving 
nation-wide  effectiveness  to  licenses  and  prior 
declarations  granted  by  or  submitted  to  any  given 
region. However, recent court practice in assessing 
cases  introduced  by  the  Competition  Authority 
suggests  that  the  Law  on  Market  Unity  was  not 
substantially  weakened  by  those  rulings.  In  2018, 
the  Competition  Authority  introduced  four  new 
judicial  appeals 
regulations  on 
professional  activities,  taxi  activity,  and  activities 
in  public  procurement,  the  outcome  of  which  is 
pending.  The  administrative  tools  foreseen  by  the 
Law  to  protect  economic  operators  are  also  being 
used  (40  claims  have  been  handled  by  the 
Secretariat  of  the  Council  for  Market  Unity  in 
2018), but their effectiveness is undermined by the 
length  of  those  procedures  that  require  reaching  a 
solution  and  the  difficulties  in  ensuring  that  their 
outcome is transposed in legislation. 

referring 

to 

Unnecessary  barriers 
in  the  regulation  of 
professional services are still in place. While the 
statutes  of  several  professional  services  were 
revised  (e.g.  architects,  engineers)  or  are  about  to 
be revised (e.g. real estate agents), the draft bill on 
professional  services  sent  to  Parliament  in  2012 
was withdrawn in 2015 and there are no proposals 
to  relaunch  this  reform.  The  restrictiveness  of 
regulation  for  certain  professions  continues  to 
exceed  the  EU  average,  with  persistent  high 
barriers  of  entry  to  some  professional  activities, 
such  as  different 
requirements  on 
regional 
membership  to  a  professional  association.  These 
restrictions  limit  competition  and  hamper  the 
mobility  of  professionals  as  well  as  an  efficient 
allocation of the resources. 

Challenges  remain  for  the  regulation  of  short 
term-rental of accommodation in several areas, 
potentially leading to regulatory fragmentation. 
A  recent  Eurobarometer  survey  (April  2018) 
indicates  that  24 %  of  respondents  from  Spain 
have  used  a  service  offered  via  collaborative 
platforms,  most  frequently  for  accommodation 

67 

 
 
4.4. Competitiveness, reforms, and investment 

will double the exchange capacity between France 
and  Spain  by  2025  (from  2800  to  5000  MW).  A 
further project on two Pyrenean crossings has been 
granted  Project  of  Common  Interest  status  and 
should 
electricity 
increase 
interconnection  capacity  between  Spain  and 
France.  

further 

the 

With  the  completion  of  the  Val  de  Saône  gas 
pipeline  in  France  in  October  2018,  Spain  has 
improved  its  access  to  the  internal  market. 
Additional  gas  interconnections  (‘Midcat’  and 
‘STEP’  as  well  as  a  third  interconnection  point 
between  Spain  and  Portugal)  have  received  the 
status  of  Projects  of  Common  Interest  and  are 
being assessed.  

Transport and connectivity 

for 

in  rail, 

In  transport,  the  improvement  of  multimodal 
freight 
connections 
including 
transport, 
the  completion  of  cross-border 
connections and road maintenance will support 
Spain's  connectivity.  Spain  has  developed  an 
extensive  and  modern  network  of  infrastructures 
for  all  transport  modes.  However,  some  Spanish 
transport  infrastructures  (ports,  high  speed  rail 
connections and airports) operate  well below their 
capacity,  and  the  share  of  freight  transported  by 
rail remains low, at 5.1 % in 2016. Road transport 
remains prominent for both passengers and freight. 
In  the  rail  segment,  there  remain  gaps  in  multi-
modal  connections  with  ports  and  logistic  hubs. 
The  Trans-European  Transport  Network  (TEN-T) 
Atlantic  and  Mediterranean  corridors  remain 
incomplete.  Addressing  these  challenges  through 
infrastructure 
contribute 
the  Spanish 
to  connectivity  of 
importantly 
territory,  in  particular  with  France,  and  to  the 
competiveness  of  its  economy.  Attention  also 
needs  to  be  paid  to  the  maintenance  of  the 
extensive  road  network  in  order  to  keep  the 
existing  high  level  of  road  safety  standards  and 
ensuring connectivity.  

investment  would 

4.4.3.  THE REGIONAL DIMENSION 

In an EU context, divergences in GDP per head 
in Spain are moderate, but remain higher than 
before 
the  crisis.  Following  a  decade  of 
convergence, regional disparities in GDP per head 
increased  in  the  aftermath  of  the  crisis.  They 

In 

looked 

into  how 

services  occasionally. 

(69 %,  the  highest  score  in  EU).  Only  7 %  of 
respondents from Spain have ever offered services 
through  collaborative  platforms,  but  19 %  of 
respondents  indicated  that  they  would  consider 
offering 
its  2016 
Communication on the collaborative economy, the 
European  Commission 
to 
encourage the development of new and innovative 
services,  and  the  temporary  use  of  assets,  while 
ensuring  adequate  consumer  and  social  protection 
(see  European  Commission  2016c).    However, 
local  authorities  have  adopted  or  intend  to  adopt 
more burdensome regimes for the short-term rental 
of  accommodation.  Some  of  the  new  regulations, 
concerning  urban  planning  in  Bilbao,  Madrid  and 
San  Sebastián,  have  been  appealed  by 
the 
Competition  Authority  as  distorting  competition. 
The  Spanish  authorities  are  assessing  the  need  to 
amend  the  existing  legal  framework  at  national 
level. 

Integration in the EU single market for energy 

liberalisation 

Limited  integration  with  the  EU  single  market 
prevents  Spain  from  fully  benefitting  from  the 
EU  electricity  and  gas  markets.  The  retail  and 
wholesale  energy  markets  remain  competitive, 
with a very high switching ratio in both electricity 
and  gas  markets.  The  energy  component  of  the 
retail electricity price continues to decrease due to 
progressive 
decreasing 
concentration  of  the  market.  However,  with  the 
in  non-contestable  charges,  average 
increase 
household  electricity  retail  prices  have  increased 
more  than  50 %  in  the  last  10  years (67).  The 
energy component of the retail gas price was more 
stable  than  for  electricity,  but  the  final  retail  gas 
price  has  also  increased  substantially  and  more 
than  the  EU  average,  reflecting  the  still  limited 
interconnection of the Iberian Peninsula with other 
EU pipelines.  

and 

Spain’s electricity interconnection level reached 
6 %  in  2017,  but  further  investments  would  be 
needed  to  reach  the  target  of  10 %  by  2020. 
However,  in  2018  important  progress  was  made 
with  a  grant  agreement  under  the  Connecting 
Europe Facility  for a new power line  crossing the 
Bay  of  Biscay  totalling  EUR  578  million  which 

(67)  See 

: 
https://www.acer.europa.eu/en/Electricity/Market%20moni
toring/Pages/Current-edition.aspx 

at 

68 

 
                                                           
4.4. Competitiveness, reforms, and investment 

health  and  basic  education.  The  largest  gaps  with 
respect  to  the  EU  are  found  in  labour  market 
efficiency.  The  latter  –  which  is  an  aggregate  of 
the  main  labour  market  indicators  –  is  also  the 
dimension  where  Spain  displays 
largest 
divergences  across  regions  (see  Section 4.3), 
together 
business 
with 
sophistication, and innovation.  

infrastructure, 

the 

Graph 4.4.6:  Weighted dispersion in GDP per head across 

Spanish regions (1) 

(1) Coefficient of Variation (CV) based on a Thiel's (0) 
decomposition, weighted by GDP/head 
Source: INE, own calculations 

a 

strong 

innovator 

the  Basque  Country,  which 

Innovation  performance 
is  below  the  EU 
average  in  most  Spanish  regions,  with  the 
exception  of 
is 
considered 
(Regional 
Innovation  Scoreboard,  2017).  The  majority  of 
Spanish regions fall  within the group of  moderate 
innovators  (performance  between  50 %  and  90 % 
of  the  EU  average).  Regional  competitiveness  is 
highly  correlated  with  the  level  of  regional  R&D 
investment (Graph 4.4.7), which is concentrated in 
the  four  regions  with  the  highest  GDP  per  capita 
(Madrid, 
the  Basque  Country,  Navarre,  and 
Catalonia).  In  addition,  with  the  exception  of 
Navarre,  Madrid,  and  Catalonia,  all  other  Spanish 
regions  are  below  the  EU  average  on  public-
private  scientific  co-publications  and  none  are 
within  the  high  performing  group.  Moreover, 
cooperation  between  small  and  medium-sized 
the 
enterprises 
dissemination  of  technologies  and  innovations 

affecting 

remains 

low, 

started  decreasing  again 
in  2014.  However, 
convergence  has  been  somewhat  uneven,  and  in 
some  cases,  poorer  regions  have  converged  more 
slowly than richer ones towards the EU average in 
GDP  per  head  (Graph 4.4.5).  In  2017,  when 
measured  by 
the  coefficient  of  variation, 
disparities  were  still  significantly  higher  than  in 
the  pre-crisis period, at a level comparable to that 
in  the  early  2000s,  but  below  the  median  of  the 
EU.  GDP  per  head  in  the  best  performing  region 
was  around 
the  worst 
twice  as  high  as  in 
performing  one  –  a  ratio  broadly  in  line  with  the 
median of the EU.  

Graph 4.4.5:  Regional convergence in GDP per head to the 

EU average – 2014-2017 

Source: INE, Eurostat, own calculations 

rate 

(See 

unemployment 

The  evolution  of  divergences  in  income  per 
capita  is  mostly  explained  by  the  dramatic 
changes in labour utilisation, and in particular in 
the 
European 
Commission  2018a).  By  contrast,  the  role  of 
productivity  has  remained  broadly  stable,  and 
lower  than  in  other  Member  States,  with  only 
slightly  faster  growth  in  the  most  productive 
regions  (Graph  4.4.6)  which  increased  somewhat 
the  productivity  gap  between  the  richest  and 
poorest regions. 

Most  Spanish  regions  rank  below  the  EU 
average in most indicators of the 2016 Regional 
Competitiveness Index. Most Spanish regions are 
below  the  EU  average  in  most  of  the  components 
of the Regional Competitiveness Index, except for 

69 

ANDARAASTBALCANCTBCYLCLMCATVALEXTGALMADMURNAVPVRIOCEUMELESy = 0,8783x + 0,7642R² = 0,00620%20%40%60%80%100%120%-2%-1%0%1%2%3%4%5%GDP/head (EU = 100), 2014GDP growth, difference with  EU-average, 2014-20170,000,050,100,150,200,250,30000204060810121416CV Labour UtilisationCV Productivity (GDP weighted) 
 
 
4.4. Competitiveness, reforms, and investment 

is only 20.9 % of households in the less populated 
rural  areas,  compared  to  71.4 %  at  national  level, 
reinforcing  the  digital  divide,  one  of  the  largest 
differences  between  total  and  rural  fibre  to  the 
premises  coverage  figures  among  all  EU  Member 
States.  When  it  comes  to  the  fixed  ultra-fast 
network  (>100Mbps)  the  average  coverage  has 
(83.6 %),  but  significant 
been  growing 
regional  disparities  persist.  The  acquisition  of 
digital  skills  could  play  a  role  in  bridging  this 
digital gap between urban and rural areas. 

fast 

in 
Urbanisation  and  demographic  pressure 
some  urban  areas,  on  the  one  hand,  and 
depopulation  and  ageing  in  rural  areas,  on  the 
other  hand,  pose  challenges.  Most  of  the  bigger 
urban  areas  have  experienced  rapid  population 
growth,  leading  to  challenges  related  to  urban 
sprawl,  poverty,  traffic  congestion,  and  bad  air 
quality.  At the  same time,  depopulation and acute 
ageing  processes  are  taking  place  in  certain  rural 
and  smaller  urban  areas,  making 
less 
attractive  for  doing  business  and  increasing  the 
cost  of  providing  public  services.  There  are  14 
provinces  heavily  affected  by  demographic 
decline,  with  more  than  25 %  of  their  population 
aged  65  or  older.  This  represents  an  additional 
challenge for the provision of healthcare and long-
term care services.  

them 

Certain  areas  are  amongst  Europe’s  most 
vulnerable to climate change. The Mediterranean 
regions  face  large  increases  in  heat  extremes  and 
decreases  in  precipitation  and  river  flows,  which 
have  heightened  the  risk  of  droughts,  biodiversity 
loss and forest fires. The northern regions are more 
exposed to river and coastal  flooding, and eastern 
regions  face  severe  damages  by  heavy  rains.  This 
requires careful policies to prevent risks and adapt.  

Significant  environmental  challenges  exist  in 
the area of water and wastewater management, 
where  the  quality  of  infrastructure  is  uneven 
across  the  country.  Certain  areas  in  Spain  are 
water-stressed,  due  to  climate  reasons,  but  also 
shortcomings  in  water  infrastructure  combined 
with  heavy  consumption  of  water  by  certain 
economic sectors (e.g. agriculture, but also energy 
and tourism). Pressure on water resources includes 
diffuse 
abstractions, 
pollution and morphological alterations. Hundreds 
of agglomerations in Spain do not yet comply with 
the  Urban  Waste  Water  Treatment  Directive,  and 

point-source 

pollution, 

from national best performing firms and regions to 
laggards. 

Graph 4.4.7:  RCI and regional R&D expenditure 

(1) 
Source: Regional Competitive Index, DG REGIO, Eurostat 

of 

the 

development 

Smart 
Through 
Specialisation  Strategies,  Spain  has 
taken 
initiatives  to  boost  its  innovation  potential  (68), 
but coordination between national and regional 
levels in research and innovation remains weak. 
Reinforced  and  more  focused  smart  specialisation 
strategies  together  with  stronger  monitoring  and 
evaluation  can  help 
innovation 
to 
performance  in  all  Spanish  regions.  In  particular, 
smart specialisation may boost industrial transition 
in  the  regions  that  face  specific  challenges  for 
economic 
to 
improve  coordination  between  national  and 
regional  initiatives  to  exploit  synergies  between 
national  and  regional  research  and  innovation 
policies  and  support  schemes  will  need  time  to 
show an impact (69).  

transformation.  Recent  efforts 

improve 

The  digital  divide  between  urban  and  rural 
households  persists.  Fast  broadband  only  covers 
37.4 % of rural households,  while the  deployment 
of  fibre  networks  (fibre  to  the  premises  or  FTTP) 

del 

(68)  Valoración 

proceso  RIS3 

(estrategias 
especialización inteligente) en España. February 2018. 
(69)  E.g. the Spanish Council for Scientific, Technological and 
Innovation  Policy;  the  Network  on  Public  Policies  for 
research,  development  and  innovation  –  REDIDI;  and  the 
new Ministry of Science, Innovation and Universities. 

de 

70 

GALASTCTBPVNAVRIOARAMADCYLCLMEXTCATVALBALANDMURCEUMELCANy = 0,6769x -1,1032R² = 0,8098-1,2-1,0-0,8-0,6-0,4-0,20,00,20,40,60,00,51,01,52,0RCI index (2017)Regional R&D expenditure (as a % of GDP), 2016 
 
                                                           
4.4. Competitiveness, reforms, and investment 

Graph 4.4.8:  Disparities in the Regional Competitiveness Index by sub-pillar, across regions and compared to EU-average (1) 

(1) Dispersion based on Max-min scores by region normalised 
Source: European Commission, Regional Competitiveness Index (DG REGIO) 

the  domestic  institutional  framework  for  water 
management is complex and fragmented. The lack 
of  a  dedicated  body  to  regulate  the  provision  of 
water  and  wastewater  services 
to 
harmonize  tariff-setting  mechanisms)  contributes 
to  this  picture.  Low  tariffs  have  contributed  to  a 
sharp  decrease 
in 
in  public 
wastewater infrastructure. 

expenditures 

(notably 

While  performing  better  than  the  EU  average 
in  resource  productivity,  Spain  also  faces 
considerable  environmental  challenges  on  air 
quality  and  biodiversity.  Spain  hosts  a  very  rich 
biodiversity  and  contributes  the  largest  territorial 
surface  to  the  EU  Natura  2000  network,  covering 
around 27 % of the Spanish territory.  Some urban 
areas have air quality problems, especially related 
to exceedances of NO2 limit values, closely linked 
to  traffic.  In  terms  of  resource  productivity  (70), 
Spain  performs  better  than  EU-average  in  the  EU 
(2.80  EUR/kg  vs  2.04  in  the  EU  in  2017). 
However,  the  high  level  of  landfilled  waste  is 
preventing 
to  a  circular 
economy. Thus, recycling rates range from 10 % in 
the Canary Islands to above 50 % in Rioja and ten 
Spanish regions are at risk of missing the EU2020 
recycling target for municipal waste.  

transition 

full 

the 

(70)  Resource  productivity  measures  how  efficiently 

the 
economy uses material resources and is defined as the ratio 
between GDP and domestic material consumption.   

The  Canary  Islands  (71),  the  Balearic  Islands 
and the autonomous cities of Ceuta and Melilla 
face specific challenges. Their remote and isolated 
location  and  small  size  impose  higher  transport 
limited 
and  communication  costs,  generate 
economies  of  scale  and  dependence  on  a  few 
economic  activities,  which  constrain  their  socio-
economic  growth  and  convergence  with  national 
indicators in several economic areas. 

4.4.4.  GOVERNANCE AND INSTITUTIONAL 

QUALITY 

is 

Effective  coordination  between  and  across 
various  levels  of  government  is  crucial  for 
making the Spanish economy more competitive. 
Spain 
country. 
a  highly  decentralised 
Autonomous communities manage a high share of 
Spain's  resources  and  hold  extensive  normative 
powers,  making  them  play  an  important  role  in 
shaping policies in Spain.    

Digital public services 

Spain ranks amongst the EU best performers in 
terms of provision of digital public services. The 
country’s 
the  area  of  open 
in 
government data is noteworthy. The largest part of 

investment 

(71)  As outermost region as defined in the Article 349 of TFEU 

71 

020406080100120Non-capital regionsCapital regionSpain 
                                                           
                                                           
 
4.4. Competitiveness, reforms, and investment 

to,  among  other 
improve 
economic efficiency.  

professionalization 

things,  combat  corruption, 
promote 
and 

local 

tasked 

regional 

The  new  governance  structure  established 
under  the  law  is  being  set  up.  The  Cooperation 
to  ensure  cooperation  of 
Committee, 
authorities  on 
and 
central, 
procurement  matters,  was  established  in  February 
2018. The new Independent Office  for Regulation 
and Supervision is being  set  up. Its President  was 
appointed 
in  July  2018.  The  Office  enjoys 
functional independence guaranteed by law, but at 
present 
the 
effective performance of its objectives and is short 
of a prominent position. This could  undermine its 
role  a  as  supervision  authority  in  relation  to  other 
institutions and bodies. 

lacks  sufficient  resources  for 

it 

of 

adoption 

elaboration 

The 
the 
and 
Procurement  Strategy  is  still  pending.  The  law 
stipulates  that  the  Strategy  has  to  be  prepared  by 
the Cooperation Committee, where all government 
levels  and  the  independent  office  are  represented.  
The  action  proposed  in  the  Strategy  needs  to  be 
based  on  sound  analysis  of  the  various  problems 
identified  during  supervision.  Moreover,  active 
involvement in the preparation of the Strategy and 
its  ownership  by  all  government  levels  is  key  to 
improve public procurement across Spain. 

Justice system  

in 

this  category 

New  challenges  for  the  Spanish  justice  system 
are  emerging.  According  to  the  2019  EU  Justice 
Scoreboard,  the  length  of  proceedings  in  first 
instance  civil  and  commercial 
litigious  cases 
increased. Spain  now ranks  in the bottom  third of 
Member  States 
(European 
Commission 2019b). In addition, the positive trend 
observed  over  the  past  few  years  in  the  clearance 
rate  at  first  instance  -  i.e.  the  ratio  of  resolved 
litigious  civil  and  commercial  cases  to  incoming 
cases - has been reversed in 2017, when it fell back 
under 100 %.  This means that as more cases come 
to  the  courts  than  are  resolved,  the  case  backlog 
increases.  This  reversal  could  be  explained  by  an 
increase in civil claims prompted by the issuing of 
several rulings of the European Court of Justice in 
relation  to  mortgage  credit  directives  mentioned 
below.  To  help 
the  court  system's 
efficiency, the new Judicial Office has been set-up 
in  several  regions  to  support  judges  in  their 

improve 

the 

required 

amongst 

adapting 

However, 

competent 

technological 

the  'digital-by-default  strategy' (72)  -  is  already  in 
place. 
administrative 
procedures  to  the  new  paradigm  across  public 
administrations  (at  national,  regional  and  local 
level  as  well  as  other  entities 
like  public 
universities)  requires  further  public  investment  to 
implement 
and 
organizational changes. It also requires finding an 
agreement 
public 
the 
administrations  to  ensure  the  full  interoperability 
of  all  the  different  systems  and  platforms  within 
the  scope  of 
respective  competences. 
Difficulties in reaching this agreement have led to 
the  delay  of  full  implementation  of  the  complete 
targets 
and 
national 
Communication  Technology  Plan  by  two  years. 
There are however margins for improvement when 
it  comes  to  the  take-up  rates  of  digital  public 
services  by  end-users  which  only  reach  76%.    In 
this  context,  the  National  Security  Strategy  2017 
seeks  to  strengthen  the  capacity  of  prevention, 
detection  and  response  to  cyber-attacks  with  a 
view to promoting a secure and reliable cyberspace 
for citizens, the public, and strategic sectors (73).  

Information 

their 

the 

of 

It 

innovation 

Public  sector 
is  also  promoted 
through  the  Observatory  for  Public  Sector 
the 
Innovation. 
sector 
dissemination 
information data amongst government, citizens and 
businesses (amongst which census, directories and 
images) (74). 

is  aimed  at  promoting 
reuse  of  public 

and 

Public procurement  

The  success  of 
law  on  public 
the  new 
procurement  will  to  a  large  extent  depend  on 
the level of ambition in its implementation. The 
law, which came into force in March 2018, aims to 
enhance  competition  and  ensure  transparency  and 
effective 
public 
procurement. It sets out a new structure governing 
Spain’s  public  procurement  and  an  obligation  to 
develop a nation-wide public procurement strategy 

control  mechanisms 

in 

(72)  Plan  de  Transformación  digital  de  la  Administración 
sus  Organismos  Públicos 

General  del  Estado  y 
http://administracionelectronica.gob.es/pae_Home/pae_Est
rategias/Estrategia-TIC-AGE.html#.Vuklmf4UV9A 

(73)  http://www.dsn.gob.es/es/estrategias-

publicaciones/estrategias/estrategia-seguridad-nacional-
2017 

(74)  see 

more 

information 

at: 

https://www.oecd.org/governance/observatory-public-
sector-innovation/countryprofiles/spain/ 

72 

 
                                                           
4.4. Competitiveness, reforms, and investment 

quality of governance. Spain scores 57/100 on the 
incidence  of  corruption  index  in  the  2018  Global 
Competitiveness  Report,  but  there  is  growing 
divergence on regional performance. Spain has one 
of  the  highest  regional  variation  on  the  2017 
European Quality of Governance Index (77), which 
captures citizens’ perceptions and experiences with 
corruption  and  the  extent  to  which  they  rate  their 
public services as impartial and of good quality in 
their  region  of  residence.  Spain  does  not  have  a 
national strategy for preventing corruption yet, but 
prevention plans and anti-corruption agencies have 
or 
established 
been 
municipalities (78).  

regions 

some 

by 

The  implementation  of  the  2015  reforms  on 
transparency,  political  party  financing,  asset 
disclosure and conflict of  interests is advancing 
and plans have been put forward to cover other 
remaining  gaps.  The  Transparency  Council  is 
handling  a  substantial  amount  of  complaints 
regarding  access  to  information,  despite  having 
limited  human  resources  (79).  The  Parliament 
finally  appointed  a  Director  for  the  Office  of 
Conflicts  of  Interest  in  September  2018.  The 
Office has been cooperating with similar bodies at 
regional  level,  despite  the  absence  of  formal 
mechanisms  or  tools  for  such  cooperation.  All 
asset  declarations  of  officials  in  the  scope  of  the 
law  on  high-ranking  officials  have  now  been 
published  for  the  period  2014-2018.  For  other 
categories of officials at central, regional and local 
levels,  rules  on  asset  disclosure  and  conflict  of 
interests  still  lack  similar  obligations  and  are  not 
streamlined  across  levels.  Certain  regions  have 
modernised their conflict of interest regulations in 
the  past  two  years  (80).  Furthermore,  an  anti-
corruption  omnibus  bill  is  being  debated  in 
parliament,  covering  several  aspects  including 
whistle-blower  protection,  the  criminalization  of 
illicit  enrichment  and  a  possible  derogation  from 
the restrictive time limits under Article 324 of the 
Criminal Procedure Code. 

procedural  and  everyday  work.  Its  development 
continues  but  its  real  impact  on  the  efficiency  of 
justice cannot be assessed at this stage.  

on 

the 

trend 

forthcoming  2019  EU 

perceived 
The 
improving 
judiciary  has  not 
independence  of 
the 
continued.  Although 
structural 
adequate 
safeguards for judicial independence seem to be in 
place, 
Justice 
Scoreboard reports that the independence of justice 
among  both  the  general  public  and  companies  is 
perceived  more  critically.  In  2018,  more  citizens 
perceive the independence as bad, compared to the 
previous year (up by 6 pps.) and fewer companies 
perceive  the  independence  as  good  (down  by 
5 pps.).  

Spain  continues  to  perform  rather  well  as 
regards  various  dimensions  of  the  quality  of 
justice. This concerns in particular aspects such as 
the  availability  of  information  technologies  for 
court  management  and  administration  (European 
Commission  2019b).  In  2018,  the  implementation 
of the "Justicia Digital" project allowing electronic 
treatment  of  information  by  judicial  offices  was 
further  deployed.  It  is  now  applied  in  all  the 
provincial  courts  and  high  courts  of  justice,  in  all 
unipersonal  courts  and  in  55 %  of  the  central 
courts. 

In  the  financial  sector,  the  European  Court  of 
Justice  has  issued  several  landmark  rulings  in 
preliminary questions related to unfair contract 
terms in mortgage credit directives in Spain (75). 
A large number of cases before the Spanish courts 
as  well as several requests  for preliminary rulings 
submitted  by  Spanish  courts  are  still  pending. 
According  to  the  latest  Consumer  Scoreboard 
data (76),  the  exposure  of  consumers  to  unfair 
commercial  practices  from  domestic  retailers 
remains among the  highest compared to other EU 
countries (although it is marginally better than two 
years ago). 

Fight against corruption  

Spain’s  scores  on  anti-corruption  indices  have 
remained  relatively  stable  over  recent  years, 
but  there  are  wide  regional  variations  in  the 

(75)  See for instance judgment of the European Court of Justice 

in joined cases C-154/15, C-307/15 and C-308/15 
(76)  Forthcoming Consumer Conditions Scoreboard (2019) 

(77)  https://qog.pol.gu.se/digitalAssets/1684/1684749_20 

18_1_charron_lapuente_2.docx.pdf. 

(78)  For example in the Valencia region or the municipality of 

Madrid. 

(79)  Since  2015  until  August  2018,  15  392  requests  registered 
on  the  transparency  portal.  The  Council  admitted  58%  of 
the  complaints  and  lodged  a  total  of  95  proceedings: 
www.consejodetransparencia.es.  

(80)  Valencia (2016), Navarre (2018) and Aragon (2017).  

73 

 
                                                           
                                                           
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (1) 

2018 country-specific recommendations (CSRs)  

Spain  has  made  Limited  Progress  in  addressing 
CSR 1 (this overall assessment of compliance with 
CSR 1  does  not 
include  an  assessment  of 
compliance with the Stability and Growth Pact) 

the 

CSR 1: Ensure compliance with Council Decision 
(EU)  2017/984  giving  notice  under  the  excessive 
deficit  procedure,  including  through  measures  to 
fiscal  and  public  procurement 
enforce 
frameworks at all levels of government. Thereafter, 
ensure that the nominal growth rate of net primary 
government expenditure does not exceed 0.6 % in 
to  an  annual  structural 
2019,  corresponding 
adjustment  of  0.65 % of  GDP.  Use  windfall  gains 
to  accelerate 
the  general 
government debt ratio.  

reduction  of 

the 

  Ensure compliance with Council Decision (EU) 
2017/984  giving  notice  under  the  excessive 
deficit procedure,  

  The  compliance  assessment  with  the  Stability 
and  Growth  Pact  will  be  included  in  Spring 
when final data for 2018 will be available 

 

including  through  measures  to  enforce  the 
fiscal  

  No Progress.  

  Limited  Progress  A  new  law  on  public 
procurement  introducing  measures  to  enhance 
competition  and  ensure 
transparency  and 
effective  control  mechanisms  came  into  force 
on  9  March  2018.  There  are  still  not  enough 
available  data  to  allow  a  sound  assessment  of 
its 
the  new 
governance  structure,  established  under  the 
new  law,  is  ongoing.  The  elaboration  of  the 
is  still 
Public  and  Procurement  Strategy 
pending.  

impact  yet.  The  set-up  of 

  The  compliance  assessment  with  the  Stability 
and Growth Pact will be included in Spring  

Spain  has  made  Limited  Progress  in  addressing 
CSR 2  

  and  public  procurement  frameworks  at  all 

levels of government.  

  Thereafter, ensure that the nominal growth rate 
of  net  primary  government  expenditure  does 
not exceed 0.6 % in 2019, corresponding to an 
annual structural adjustment of 0.65 % of GDP.  

  Use  windfall  gains  to  accelerate  the  reduction 

of the general government debt ratio.  

CSR 2:  Ensure 
that  employment  and  social 
services  have  the  capacity  to  provide  effective 
support  for  jobseekers,  including  through  better 
cooperation  with  employers.  Foster  transitions 
towards  open-ended  contracts.  Improve  family 
support  and  increase  the  effectiveness  of  income 
guarantee  schemes,  by  addressing  coverage  gaps, 
simplifying  the  system  of  national  schemes  and 
to 
reducing  disparities 

in  access  conditions 

74 

 
 
 
regional  ones.  Reduce  early  school  leaving  and 
regional  disparities  in  educational  outcomes,  in 
particular  by  better  supporting  students  and 
teachers  

  Ensure  that  employment  and  social  services 
have  the  capacity  to  provide  effective  support 
through  better 
including 
for 
cooperation with employers.  

jobseekers, 

A. Overview table 

that 

includes 

  Some progress. Spain has slightly but steadily 
increased  the  economic  and  human  resources 
of  regional  public  employment  services  since 
2017  and  approved  a  technical  guidance  to 
better provide services to jobseekers. The  new 
government launched an Action Plan for Youth 
a  budgetary 
Employment 
allocation  to  hire  3  000  new  staff  to  increase 
support  and  guidance  for  young  unemployed. 
However,  total  public  employment  services 
staff and expenditure are still lower than before 
the  crisis.  The  performance  of  the  public 
employment services is uneven across regions. 
Measures  to  provide  individualised  services  to 
jobseekers,  including  through  profiling  and  IT 
tools, are still in an initial phase. Furthermore, 
Spain had in 2017 the lowest share in the EU of 
unemployed  people  using  public  employment 
services for job search. 

  Foster 

transitions 

towards 

open-ended 

contracts.  

  Some  progress.  Spain  approved  in  July  2018 
an  Action  Plan  to  tackle  the  sources  of  labour 
market  segmentation.  In  addition,  the  capacity 
of  labour  inspectorates  to  fight  the  abuse  of 
temporary  contacts  and  undeclared  work  was 
further  strengthened.  However, 
temporary 
contracts  are  still  widely  used  and  there  are 
doubts  about  the  effectiveness  of  existing 
incentives to promote open-ended employment. 
In  the  public  sector,  recruitment  competitions 
are  ongoing  to  reduce  fixed-term  employment 
down to 8 % in all sectors. However, estimates 
show still high shares of temporary employees 
in the public sector. 

 

increase 

Improve  family  support  and 
the 
effectiveness of income guarantee schemes, by 
addressing  coverage  gaps,  simplifying 
the 
system  of  national  schemes  and  reducing 
disparities  in  access  conditions  to  regional 
ones.  

age  people 

  Limited  Progress.  The  poverty-reducing 
impact of social transfers (other than pensions) 
remains one of the lowest in the EU, especially 
for  children.  Meanwhile,  the  share  of  poor 
working 
jobless 
households in receipt of benefits is well below 
the EU average and public spending on family 
benefits  is  almost  half  of  the  EU  average. 
in  access 
Fragmentation  and  disparities 
to 
across 
conditions 
undermine  the  effectiveness  of  the  multiple 
income guarantee schemes. The new Universal 

continue 

regions 

living 

in 

75 

 
A. Overview table 

Social  Card  envisages  collecting  information 
from central, regional and local government on 
all  benefits  and  recipients,  but  it  will  not 
directly address the weaknesses of the existing 
schemes. 

  Limited  Progress.  Despite  having  improved, 
early  school  leaving  rates  are  still  high  and 
regional  disparities  persist.  The  early  school 
leaving rate  is still  well above the EU average 
and  the  national  Europe  2020  target,  with  a 
difference  of  20  pps.  between 
the  best 
performing  and  the  worst  performing  regions. 
In  the  absence  of  effective  policy  measures, 
there is a risk that labour market improvements 
create  negative  incentives  for  young  people  to 
drop  out  of  school  prematurely.  Existing 
coordination  schemes  between  national  and 
regional  administrations  are  not  sufficient  to 
address  regional  disparities  in  education  and 
training outcomes  

Spain  has  made  Limited  Progress  in  addressing 
CSR 3  

  Reduce  early  school  leaving  and  regional 
in 
disparities 
particular  by  better  supporting  students  and 
teachers  

educational  outcomes, 

in 

Increase 

cooperation 

CSR 3: Increase public investment in research and 
innovation and systematically carry out evaluations 
of  support  policies  in  this  area  to  ensure  their 
effectiveness. 
between 
education and businesses with a view to mitigating 
existing 
the 
implementation  of  the  Law  on  Market  Unity  by 
ensuring  that,  at  all  levels  of  government,  rules 
governing  access  to  and  exercise  of  economic 
activities, in particular for services, are in line with 
improving 
that  Law  and  by 
principles  of 
cooperation between administrations.  

skills  mismatches. 

Further 

 

Increase  public  investment  in  research  and 
systematically  carry  out 
innovation  and 
evaluations  of  support  policies  in  this  area  to 
ensure their effectiveness.  

 

Increase  cooperation  between  education  and 
businesses  with  a  view  to  mitigating  existing 
skills mismatches.  

  Limited Progress Spain made limited progress 
in increasing public investment in research and 
innovation  so 
level  of  public 
investment  in  R&D  remains  unchanged  in  the 
absence of a new Budget Law for 2019. There 
have  been 
the 
evaluation of research and innovation policies.  

limited  steps 

to  enhance 

far.  The 

  Limited  Progress  Cooperation 

between 
universities  and  businesses  remains  weak, 
albeit  improving,  with  initiatives  to  increase 
business  participation  in  the  decision-making 
process.  Despite  the  high  tertiary  education 
attainment,  skills  supply  is  not  sufficiently 
aligned  with  labour  market  needs.  Matching 
initial vocational education and training (VET) 
with labour market needs is still a challenge in 

76 

 
A. Overview table 

Spain.  Spain  lacks  enough  skills  for  smart 
specialisation, 
and 
entrepreneurship.  

industrial 

transition 

  Further  the  implementation  of  the  Law  on 
Market  Unity  by  ensuring  that,  at  all  levels  of 
government,  rules  governing  access  to  and 
exercise of economic activities, in particular for 
services, are in line with principles of that Law 
and  by 
cooperation  between 
administrations.  

improving 

  Limited Progress. Some  measures were taken 
to  implement  the  Law  on  Market  Unity  with 
however limited effect. Measures include work 
the 
on  sectorial  conference, 
implementation  of  the  law.  Several  favourable 
court  rulings  applying  this  Law  were  passed 
during this period. 

training  on 

Europe 2020 (national targets and progress)  

Employment rate target: 74 %.  

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

National  greenhouse  gas  (GHG)  emissions  target:  
- 10 % in 2020 compared with 2005 (in sectors not 
included in the EU emissions trading scheme)  

2020 renewable energy target: 20 %  

Energy  efficiency,  2020  energy  consumption 
targets:  

  Spain's  2020  energy  efficiency  target  is  122.6 
Mtoe 
energy 
in 
consumption  (87.23  Mtoe  expressed  in  final 
energy consumption)  

expressed 

primary 

The employment rate  for 20-64 years old  workers 
increased up to 65.5 % in the first three quarters of 
2018,  remaining  6.7 pps  below  the  EU  average 
(72.2 %) and 7.2 pps below the Europe 2020 target 
for Spain.  

With an overall R&D spending of 1.20 %, reaching 
the  2%  national  R&D  intensity  target  in  2020 
remains practically unattainable. 

In  2017,  R&D  intensity  was  composed  of  55% 
private  investment  (0.66%  of  GDP)  and  45% 
public investment (0.54% of GDP). 

Emissions  from  sectors  not  covered  by  the  EU 
Emission  trading  scheme  were  reduced by  15.3 % 
between  2005  and  2017,  which  is  above  Spain's 
target  of  -10 %  compared  to  2005.  Based  on  the 
latest  national  projections  taking  into  account 
existing measures, the 2020 target is expected to be 
exceeded by a  margin of 9.9 pps. However, Spain 
is expected to miss the 2030 target of -26 % by 9.9 
pps.  

With  a  renewable  energy  share  of  17.5 %  (2017), 
Spain is above its indicative trajectory to reach the 
2020 target, but this trajectory becomes  steeper in 
the last years of this decade.   

Latest  figures  (2017)  show  an  additional  increase 
to  125.6 Mtoe  primary  energy  consumption  and 
84.2 Mtoe  final  energy  consumption.  Whilst  the 
figures for final energy consumption remain below  
the Spanish indicative 2020 target, primary energy 
consumption  exceeds  it.  Spain  should  further 
intensify  its  commitment  to  energy  efficiency  in 
order  to  reverse  this  trend  and  make  sure  that 
demand remains below both targets during the next 

77 

 
A. Overview table 

Early school/training leaving target: 15 %.  

Tertiary education target: 44 % of population aged 
30-34.  

years.   

The  rate  of  early  school  leaving  (ESL)  (18-24 
years old) stood at 18.3 % in 2017, still among the 
highest  in  the  EU  and  still  some  way  from  the 
Spanish  Europe  2020  target.  The  indicator  varies 
greatly  across  regions  (from  7 %  to  26.5 %).  It  is 
especially  high  for  students  with  disabilities  and 
non-EU born background. 

In  2017,  the  proportion  of  30-34  year-old  tertiary 
graduates  increased  slightly  to  41.2 %.  It  is  above 
the EU average (39.9 %), but still some way from 
the Europe 2020 national target of 44 %. 

Target for reducing the number of people at risk of 
poverty  or  social  exclusion,  expressed  as  an 
absolute  number  of  people:  -1 400 000  compared 
to 2008  

Although  the  number  of  people  at  risk  of  poverty 
or  social  exclusion  is  decreasing  since  2014,  in 
2017 it was still 1 450 000 more than in 2008. The 
Europe 2020 target is therefore far from reach. 

(1)  The  following  categories  are  used  to  assess  progress  in  implementing  the  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 address the CSR only to a limited extent; and/or 

  presented legislative acts in the governing or legislative body but these have not been adopted yet and 

substantial further, non-legislative work is needed before the CSR is implemented; 

78 

 
 
 
A. Overview table 

  presented  non-legislative  acts,  but  has  not  followed  these  up  with  the  implementation  needed  to 

address the CSR. 

Some progress: The Member State has adopted measures  

 

that partly address the CSR; and/or  

 

that address the CSR, but a fair amount of work is still needed to fully address the CSR fully as only a 
few of the measures have been implemented. For instance, a measure or measures have been adopted 
by the national Parliament or by ministerial decision but no implementing decisions are in place.  

Substantial progress: The  Member State has adopted measures that go a long way towards addressing 
the CSR and most of them have been implemented.  

Full  implementation:  The  Member  State  has  implemented  all  measures  needed  to  address  the 
CSR appropriately.  

79 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

80 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2017201820192020202120222023202420252026202720282029Gross debt ratio98.196.996.295.495.896.898.299.1100.3101.6103.2105.2107.3Changes in the ratio (-1+2+3)-0.8-1.2-0.7-0.80.40.91.40.91.11.41.62.02.1of which(1) Primary balance (1.1+1.2+1.3)-0.5-0.30.10.2-0.4-0.8-1.2-1.3-1.3-1.3-1.2-1.3-1.3(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)-0.3-0.7-0.8-1.0-1.2-1.2-1.2-1.3-1.3-1.3-1.2-1.3-1.3(1.1.1) Structural primary balance (bef. CoA)-0.3-0.7-0.8-1.0-1.0-1.0-1.0-1.0-1.0-1.0-1.0-1.0-1.0(1.1.2) Cost of ageing0.20.30.30.30.30.30.30.30.4(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component-0.20.51.01.20.80.40.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.0-0.10.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.5-1.4-1.3-1.20.10.10.2-0.3-0.10.10.40.70.8(2.1) Interest expenditure2.62.42.32.22.22.32.52.62.83.13.33.63.9(2.2) Growth effect-2.8-2.4-2.0-1.8-0.5-0.4-0.4-1.0-1.0-1.0-1.0-0.9-1.0(2.3) Inflation effect-1.2-1.3-1.6-1.6-1.7-1.8-1.9-1.9-1.9-2.0-2.0-2.0-2.1(3) Stock-flow adjustments0.1-0.10.70.70.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018.ES - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 70758085909510010511011512020162017201820192020202120222023202420252026202720282029Debt as % of GDP -ESBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario70809010011012020162017201820192020202120222023(% of GDP)Stochastic debt projections 2019-2023 -ESp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline70758085909510010511011512020162017201820192020202120222023202420252026202720282029Debt as % of GDP -ESBaselineHistorical SPB scenarioSGP scenario70758085909510010511011512020162017201820192020202120222023202420252026202720282029Debt as % of GDP -ESBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryHIGHHIGHHIGHHIGHHIGHHIGHDebt level (2029)107.3105.5112.9113.2108.6Debt peak year20292029202920292029Percentile rank72.0%70.0%Probability debt higher54.1%Dif. between percentiles17.6HIGHLong termDSAHIGHDebt sustainability analysis (detail)Medium termHIGHHIGHShort termLOW(S0 = 0.4)(S1 = 5.2)S2MEDIUM(S2 = 2.3)S1 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

1) Latest data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks. 
2) Latest data Q2 2018. 
3) Quarterly values are annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

81 

201320142015201620172018Total assets of the banking sector (% of GDP)1)307.3286.5261.6243.8233.5218.9Share of assets of the five largest banks (% of total assets)54.458.360.261.863.7-Foreign ownership of banking system (% of total assets)2)6.26.55.33.94.54.6Financial soundness indicators:2)              - non-performing loans (% of total loans)-8.16.35.74.44.1              - capital adequacy ratio (%)13.313.614.514.715.415.1              - return on equity (%)3)5.86.76.65.07.08.9Bank loans to the private sector (year-on-year % change)1)-8.6-4.8-2.3-1.60.1-1.0Lending for house purchase (year-on-year % change)1)-4.1-3.7-4.2-2.8-2.3-1.4Loan to deposit ratio2)-90.391.792.589.389.9Central Bank liquidity as % of liabilities1)-6.26.16.97.97.9Private debt (% of GDP)177.2165.8154.8146.8138.8-Gross external debt (% of GDP)2) - public41.248.551.149.448.948.4    - private52.453.249.146.641.840.9Long-term interest rate spread versus Bund (basis points)*299.2156.0123.9130.3123.8100.6Credit default swap spreads for sovereign securities (5-year)*185.571.472.668.137.833.6 
 
  
  
 
 
 
C. Standard tables 

Table C.2: 

Headline Social Scoreboard indicators 

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 Long-term unemployed are people who have been unemployed for at least 12 months.       
4 Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
5 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).       
6 Average of first three quarters of 2018 for the employment rate, long-term unemployment rate and gender employment 
gap. Data for unemployment rate is seasonally adjusted (annual series, for EE, EL, HU, IT and UK data based on first three 
quarters of 2018).       
Source: Eurostat. 

82 

201320142015201620172018 6Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)23.621.920.019.018.3:Gender employment gap (pps)9.610.211.211.511.912.1Income inequality, measured as quintile share ratio (S80/S20)6.36.86.96.66.6:At-risk-of-poverty or social exclusion rate1 (AROPE)27.329.228.627.926.6:Young people neither in employment nor in education and training (% of population aged 15-24)18.617.115.614.613.3:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)58.659.962.063.965.566.8Unemployment rate2 (15-74 years)26.124.522.119.617.215.3Long-term unemployment rate3 (as % of active population)13.012.911.49.57.76.6Gross disposable income of households in real terms per capita4 (Index 2008=100) 89.290.392.794.394.2:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)21522219992258423077::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-1.2-0.81.11.9::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction532.028.626.624.423.9:Children aged less than 3 years in formal childcare35.036.939.739.345.8:Self-reported unmet need for medical care0.80.60.60.50.1: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 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.       
2 PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
3 Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science.       
4 Average of first three quarters of 2018. Data for youth unemployment rate is seasonally adjusted (annual series, for EE, EL, 
HU, IT and UK data based on first three quarters of 2018).       
Source: Eurostat, OECD. 

83 

Labour market indicators201320142015201620172018 4Activity rate (15-64)74.374.274.374.273.9:Employment in current job by durationFrom 0 to 11 months14.115.616.516.917.5:From 12 to 23 months6.76.87.48.38.7:From 24 to 59 months13.413.312.312.113.0:60 months or over65.864.363.862.660.8:Employment growth* (% change from previous year)-2.61.02.82.62.62.2Employment rate of women(% of female population aged 20-64)53.854.856.458.159.660.8Employment rate of men (% of male population aged 20-64)63.465.067.669.671.572.8Employment rate of older workers* (% of population aged 55-64)43.244.346.949.150.551.9Part-time employment* (% of total employment, aged 15-64)15.715.815.615.114.914.5Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)23.224.025.226.126.826.9Participation in activation labour market policies(per 100 persons wanting to work)23.325.128.328.9::Transition rate from temporary to permanent employment(3-year average)13.213.612.210.711.5:Youth unemployment rate (% active population aged 15-24)55.553.248.344.438.634.3Gender gap in part-time employment17.517.817.316.516.917.2Gender pay gap1 (in undadjusted form)17.814.914.215.115.1:Education and training indicators201320142015201620172018Adult participation in learning(% of people aged 25-64 participating in education and  training)11.410.19.99.49.9:Underachievement in education2::22.2:::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)42.342.340.940.141.2:Variation in performance explained by students' socio-economic status3::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. 

84 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.66.56.56.66.6:Disability1.81.91.81.71.7:Old age and survivors11.412.012.312.012.0:Family/children1.31.41.31.31.3:Unemployment3.43.32.72.21.9:Housing0.10.10.10.10.1:Social exclusion n.e.c.0.20.20.20.20.2:Total25.025.324.924.223.9:of which: means-tested benefits3.73.73.53.23.1:General government expenditure by function (% of GDP, COFOG)Social protection17.618.017.717.116.8:Health6.26.26.16.26.0:Education4.24.14.14.14.0:Out-of-pocket expenditure on healthcare (% of total health expenditure)22.824.024.423.823.8:Children at risk of poverty or social exclusion (% of people aged 0-17)*32.432.635.834.432.931.3At-risk-of-poverty  rate1 (% of total population)20.820.422.222.122.321.6In-work at-risk-of-poverty rate (% of persons employed)10.810.512.513.113.113.1Severe material deprivation rate2  (% of total population)5.86.27.16.45.85.1Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan1.01.00.91.00.70.3Tenant, rent at market price3.53.83.33.03.12.8Proportion of people living in low work intensity households4 (% of people aged 0-59)14.315.717.115.414.912.8Poverty thresholds, expressed in national currency at constant prices*740770506813686970847379Healthy life years (at the age of 65)Females9.09.09.48.910.4:Males9.29.710.19.510.4:Aggregate replacement ratio for pensions5 (at the age of 65)0.60.60.60.70.70.7Connectivity dimension of the Digital Economy and Society Index (DESI)6::44.553.254.159.5GINI coefficient before taxes and transfers*50.851.552.752.952.852.1GINI coefficient after taxes and transfers*34.233.734.734.634.534.1 
  
  
 
 
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

1 Value added in constant prices divided by the number of persons employed.       
2 Compensation of employees in current prices divided by value added in constant prices.       
3 The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
4 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 
75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the application is still 
pending or don't know.       
5 Percentage population aged 15-64 having completed tertiary education.       
6 Percentage population aged 20-24 having attained at least upper secondary education.       
7 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       
8 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). 

85 

Performance indicators201220132014201520162017Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry1.760.662.720.431.731.07Labour productivity growth in construction9.722.041.21-1.791.950.23Labour productivity growth in market services2.181.670.17-0.390.070.61Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry-0.240.72-2.41-0.15-1.38-0.37ULC growth in construction-11.64-4.00-0.491.53-0.560.05ULC growth in market services-3.04-1.910.362.29-0.121.22Business environment201220132014201520162017Time needed to enforce contracts3 (days)510510510510510510Time needed to start a business3 (days)30.024.014.014.013.013.0Outcome of applications by SMEs for bank loans41.150.980.970.660.560.49Research and innovation201220132014201520162017R&D intensity1.291.271.241.221.19:General government expenditure on education as % of GDP4.204.104.104.104.00:Employed people with tertiary education and/or people employed in science and technology as % of total employment434445454546Population having completed tertiary education5303132323333Young people with upper secondary education6636466697172Trade balance of high technology products as % of GDP-0.86-0.70-0.87-1.06-0.99-1.07Product and service markets and competition200320082013OECD product market regulation (PMR)7, overall1.791.591.44OECD PMR7, retail3.673.482.88OECD PMR7, professional services2.922.742.43OECD PMR7, network industries82.271.651.59 
  
  
  
 
 
 
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 (Europe 2020-2030)(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 use in industry (in kgoe) divided by gross value added of industry, including construction 
(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 use in transport sector including international aviation, (in kgoe) divided by transport 
industry gross value added (in 2010 EUR) 
Transport carbon intensity: GHG emissions in transport sector divided by gross value added of the transport activities 
Energy import dependency: net energy imports divided by gross inland energy consumption plus consumption of 
international maritime bunkers  
Aggregated supplier concentration index:  Herfindahl-Hirschman index for net imports of crude oil and NGL, natural gas and 
hard coal. Smaller values indicate larger diversification and hence lower risk. 
Diversification of the energy mix: Herfindahl-Hirschman index of the main energy products in the gross inland consumption of 
energy 
* 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); Eurostat (all other indicators). 

86 

Green growth performance201220132014201520162017MacroeconomicEnergy intensity kgoe / €0.120.120.110.110.110.11Carbon intensity kg / €0.340.320.310.310.29-Resource intensity (reciprocal of resource productivity)kg / €0.400.380.380.380.360.36Waste intensity kg / €0.11-0.11-0.12-Energy balance of trade % GDP-3.8-3.4-2.9-2.0-1.5-1.8Weighting of energy in HICP%11.612.412.312.411.710.9Difference between energy price change and inflation %7.4-1.92.6-4.5-10.27.2Real unit of energy cost% of value added15.315.415.716.517.4-Ratio of environmental taxes to labour taxesratio0.090.120.110.120.12-Environmental taxes% GDP1.61.91.91.91.91.8Sectoral Industry energy intensity kgoe / € 0.090.090.090.080.080.08Real unit energy cost for manufacturing industry excl. refining% of value added20.019.218.719.520.4-Share of energy-intensive industries in the economy% GDP8.07.57.88.29.28.9Electricity prices for medium-sized industrial users€ / kWh0.120.120.120.120.110.10Gas prices for medium-sized industrial users€ / kWh0.040.040.040.030.030.03Public R&D for energy % GDP0.010.010.010.010.020.01Public R&D for environmental protection% GDP0.020.020.020.020.020.02Municipal waste recycling rate%29.832.530.830.033.933.5Share of GHG emissions covered by ETS*%40.837.838.340.538.4-Transport energy intensitykgoe / €0.760.780.750.760.800.79Transport carbon intensitykg / €1.851.951.881.891.97-Security of energy supplyEnergy import dependency%73.070.272.772.971.573.9Aggregated supplier concentration indexHHI14.919.825.220.518.3-Diversification of energy mixHHI0.270.270.270.270.280.28 
  
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON COHESION POLICY 

FUNDING 2021-2027 FOR SPAIN 

Building  on  the  Commission  proposal  for  the  next  Multi-Annual  Financial  Framework  for  the  period 
2021-2027  of  2  May  2018  (COM  (2018)  321),  this  Annex  D  presents  the    preliminary  Commission 
services views on priority investment areas and framework conditions for effective delivery for the 2021-
2027 Cohesion Policy. These priority investment areas are derived from the broader context of investment 
bottlenecks,  investment  needs  and  regional  disparities  assessed  in  the  report.  This  Annex  provides  the 
basis  for  a  dialogue  between  Spain  and  the  Commission  services  in  view  of  the  programming  of  the 
Cohesion policy funds (European Regional Development Fund and European Social Fund Plus). (81)  (82) 

Policy Objective 1: A Smarter Europe – Innovative and smart industrial transformation 

Spain remains a moderate innovator and the innovation capabilities of its  public sector and companies 
are insufficient to increase their productivity. High priority investment needs(83) are therefore identified 
to  enhance  research  and  innovation  capabilities  and  the  uptake  of  advanced  technologies  within 
the  framework  of  regional  smart  specialisation  strategies  identifying  priority  areas  based  on  regional 
needs, in particular to:  

 

foster investment in research and innovation, in particular to increase the number of innovative firms 
in  the  Smart  Specialisation  Strategy  sectors,  including  innovative  public  procurement  and 
development of new products, processes and services; 

  enhance technology transfer and  market-oriented cooperation between businesses, research centres 
and  universities,  in particular through the development and use of innovation eco-systems and the 
increase of the capacity of firms to internalise external knowledge; 

  stimulate interregional cooperation in new value chains, also with other Member States; 

 

increase  synergies  and  complementarities  between  national  and  regional  operational  programmes 
through joint programming for a more efficient use of public resources. 

In  order  to  increase  the  uptake  of  new  generation  Information  and  Communication  Technology    by 
businesses and to improve the access to e-government and other public e-services, priority investment 
needs  are  identified  to  reap  the  benefits  of  digitisation  for  citizens,  companies  and  governmental 
bodies, and in particular to: 

  support the uptake of digital technologies and Information and Communication Technology  based 
business  models  for  SMEs,  including  infrastructures  and  services  like  digital  innovation  hubs,  as 
well as promoting e-skilling and market-driven Information and Communication Technology skills 
in small and medium sized enterprises; 

  develop and promote interoperable e-government and e-services (health, education and other public 
services), in particular in remote and outermost regions, and including joint provision of services in 
border areas. 

(81)  This Annex is to be considered in conjunction with the Proposal for a Regulation of the European Parliament and of the Council 
on the European Regional Development Fund and on the Cohesion Fund COM(2018) 372 and the EC Proposal for a Regulation 
of the European Parliament and of the Council on the European Social Fund Plus COM(2018) 382, in particular as regards the 
requirements for thematic concentration and urban earmarking outlined in these proposals.  

(82)  Transnational  cooperation,  cross  border  cooperation  and  integration  of  the  outermost  region  of  the  Canary  Islands  in  its 

neighbouring environment could be supported in the framework of the Atlantic Strategy.  

(83)  The intensity of needs is classified in three categories in a descending order - high priority needs, priority needs, needs. 

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D. Investment guidance on cohesion policy funding 2021-2027 for Spain 

The reduced size of Spanish small and medium sized enterprises affects their innovation capacity and 
productivity.  High  priority  investment  needs  are  therefore  identified  to  enhance  growth  and 
competitiveness of small and medium sized enterprises, and in particular to: 

  promote  entrepreneurship,  growth  of  start-ups/scale-ups,  incubators  and  accelerators,  access  to 
advanced  business  services,  and  new  business  models  for  small  and  medium  sized  enterprises,  in 
particular through investment in intangibles; 

  boost exports, by increasing the number of regular exporters, in particular of SMEs with a focus on 

developing the link between exporting and innovation; 

  encourage  entrepreneurial  ecosystems  by  supporting  networking,  business  transfer  ecosystems, 
(industry-led)  cluster  development  and  deployment  of  joint  interregional  innovative  projects,  also 
cross-border. 

Skill gaps and mismatches hinder productivity and technology diffusion, and affect the development of 
innovative competences in Spain. In this sense, priority investment needs are identified to develop skills 
for smart specialisation, industrial transition and entrepreneurship, and in particular to: 

  stimulate  innovation  management,  specific  training  and  re-skilling  in  the  areas  of  smart 
specialisation, industrial transition and entrepreneurship, in particular on key enabling technologies 
and emerging fields; 

 

integrate  education  institutions  within  national  and  regional  innovation  ecosystems  to  increase  the 
commercial viability and market relevance of their research projects. 

Policy Objective 2: A low carbon and greener Europe  – Clean and fair energy transition,  green 
and blue investment, circular economy, climate adaptation and risk prevention(84) 

The  2016  and  2017  figures  show  an  increase  in  energy  consumption,  in  particular  in  industry  and 
buildings. High priority investment needs are therefore identified to promote energy efficiency, and in 
particular to: 

  accelerate the energy efficient renovation of the building stock (including public buildings and small 
and  medium-sized enterprises), prioritising the renovation  of residential buildings and focusing on 
the energy poor; 

  promote small-scale infrastructure and access to small grids with cross-border regions. 

The electricity interconnection level of Spain was 6% in 2017. Priority investment needs are identified 
to promote smart energy systems at local level and in particular to:  

  deploy  smart  electricity  distribution  grids  and  storage  solutions  –  linked  to  demand  and  supply 

planning, also in a cross border-context. 

(84)  While  outside  of  the  scope  of  the  ERDF  and  the  Cohesion  Fund  (art.  6,  paragraph  1(h),  COM  (2018)372),  energy 
interconnectors could be financed by the Connecting Europe Facility in line with its objectives (art. 3, paragraphs 1 and 2 (b), 
COM(2018) 438). 

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D. Investment guidance on cohesion policy funding 2021-2027 for Spain 

The increase of the renewable energy share in Spain has visibly slowed down between 2014 and 2017. 
Priority investments needs are therefore identified to promote renewable energy and in particular :  

 

foster the deployment of small-scale renewable electricity capacities owned by energy communities, 
small and medium sized enterprises  or individual energy consumers;  

  promote the transition to renewables in heating and cooling;  

  support renewable energy technologies that are close to market or not yet widely deployed. 

Spain  is  one  of  the  areas  in  Europe  most  vulnerable  to  climate  change.  Priority  investment  needs  are 
therefore identified to promote climate change adaptation, risk prevention and disaster resilience, 
and in particular to: 

  support  prevention  and  climate-change  adaptation  measures  based  on  an  ecosystem  restoration 

approach, also in a cross-border context; 

 

reinforce preparedness and response capacity, including in a cross-border/transnational context. 

Certain  areas  in  Spain  are  seriously  water-stressed.  High  priority  investment  needs  are  identified  to 
reach  the  objectives  of  the  Water  Framework  Directive  and  the  Urban  Waste  Water  Treatment 
Directive, and in particular to: 

 

 

foster  an  efficient  use  of  water  resources  throughout  the  whole  water  cycle  by  promoting  water 
saving and re-use, as well as by supporting ecosystem-based measures; 

invest  in  the  collection  and  treatment  of  wastewater  in  less  developed  regions  and  regions  with 
specific needs, such as the islands. 

In 2017, Spain’s municipal waste recycling rate was 34%, while its landfilling rate was 54%, well above 
the EU average (24%). Biodiversity conservation is a challenge in Spain. Priority investment needs are 
therefore  identified  to  improve  resource  efficiency  and  waste  management,  and  to  enhance 
biodiversity and green infrastructures, in particular to: 

 

foster a transition towards a circular economy, as well as shifting towards higher steps of the waste 
management  hierarchy,  by  promoting  separate  collection  systems  and  re-use  centres,  and  by 
developing waste recycling and  material recovery facilities for separately collected waste, also in a 
supra-regional context; 

  protect and restore biodiversity by promoting green infrastructures, especially in urban areas. 

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D. Investment guidance on cohesion policy funding 2021-2027 for Spain 

Policy  Objective  3:  A  more  connected  Europe  –  Mobility  and  regional  Information  and 
Communication Technology connectivity 

Given  Spain’s  peripheral  position,  a  well-functioning  and  well-connected  network  infrastructure 
(especially  rail)  is  essential  to  access  the  main  EU  markets,  increase  competitiveness  and  ensure 
territorial cohesion. Priority investment needs are therefore identified to develop a sustainable, climate 
resilient,  intelligent,  secure  and  intermodal  Trans-European  Transport  Network,  including 
improved access to Trans-European Transport Network, and in particular to: 

  complete  the  core  Trans-European  Transport  rail  Network  (Atlantic  and  Mediterranean  corridors), 

including cross border links and better connectivity with ports and logistic platforms; 

 

foster digitisation for more intelligent, interoperable, intermodal and safer transport systems; 

  promote clean mobility and related infrastructure, including alternative fuels’ infrastructure; 

 

improve accessibility and interconnectivity of the Canary Islands as outermost region. 

The  transport  sector  is  one  of  the  biggest  energy  consuming  sectors.  Priority  needs  are  therefore 
identified to promote sustainable multimodal urban mobility, and in particular to: 

  promote  more  inclusive,  sustainable  and  efficient  urban  transport  systems  and  reduce  the  negative 
externalities  of  transport  (congestion,  emissions,  air  quality)  based  on  sustainable  urban  mobility 
plans; 

  enhance the deployment of intelligent transport systems.  

Spain performs well in terms of broadband connectivity, but the digital divide between urban and rural 
areas  persists  –  and  between  regions.  Investment  needs  are  therefore  identified  to  enhance  digital 
connectivity, and in particular: 

  deploy  very  high  capacity  broadband  networks  for  backward  regions  (including  the  outermost), 

providing speeds of at least 100 Mbps, and eliminate the urban-rural coverage gap;  

  deploy  or  upgrade  very  high  capacity  network  connections  enabling  access  to  1Gbps  for  the  main 
socio-economic  drivers  (schools,  transport  hubs,  public  service  providers,  digitally  intensive 
enterprises, etc.) in all regions. 

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D. Investment guidance on cohesion policy funding 2021-2027 for Spain 

Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights 

Unemployment is high, in particular in some regions; employment rates are low especially for women, 
the  young,  low-skilled,  people  with  disabilities  and  non-EU-born.  The  share  of  temporary  contracts 
remains  high.  The  capacity  and  performance  of  the  public  employment  services  remain  limited, 
especially in some regions. High priority investment needs are therefore identified to improve access to 
employment  and  promote  adaptation  of  workers,  enterprises  and  entrepreneurs  to  change;  to 
modernise  labour  market  institutions  and  services  to  assess  and  anticipate  skills  needs,  and 
support labour market matching and transitions and mobility, and in particular to: 

  provide active and preventive labour market measures such as training, traineeships, apprenticeships, 
second  chance  programmes,  and  well-designed  employment  subsidies  to  promote  open-ended 
employment;  support  entrepreneurship  and  social  enterprises;  support  voluntary  labour  mobility 
across sectors and regions; 

  support enterprises in developing and  fully  utilising the human capital in their  firms,  including by 
adopting  new  work  organisation  and  reconciliation  practices,  Human  Resources  tools,  and 
workforce training; 

  strengthen the capacity of public employment services to i) provide services to jobseekers and job 
changers,  including  profiling,  personalised  services  and  guidance,  up-skilling  and  re-skilling;  ii) 
collaborate  with  and  offer  services  to  employers;  iii)  establish  partnerships  with  social  services, 
education and training institutions, and third sector; iv) support outreach measures. 

 

invest in infrastructure, equipment and technologies to strengthen the capacity of public employment 
services, including tools for profiling, skills matching and anticipation of skills demand. 

Early  school  leaving  remains  high,  educational  and  training  outcomes  are  low  especially  in  some 
regions,  and  substantial  skills  mismatches  persist.  High  priority  investment  needs  are  therefore 
identified  to  improve  the  quality  and  labour  market  relevance  of  education  and  training;  to 
promote quality and inclusive education and training, in particular for disadvantaged groups, and 
lifelong learning opportunities for all, and in particular to: 

 

increase access and completion at all levels of education and training, especially in regions with high 
early school leaving rates and/or low educational outcomes. 

  support the acquisition of key competences, including digital skills.  

  promote  vocational  education  and  training  as  a  quality  and  high-skill  career  pathway,  including 

through workplace learning and links with local innovation ecosystems. 

  promote teachers’ and trainers' career development and mobility. 

  support investments in early childhood education and care, education and training infrastructures. 

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D. Investment guidance on cohesion policy funding 2021-2027 for Spain 

Poverty remains high, in particular for children and non-EU-born, as well as in-work poverty. Coverage 
and adequacy of benefits (different from pensions) are limited and some groups face barriers to access 
services.  Care  delivery  is  not  adapted  to  population  ageing,  disability  and  chronic  conditions.  High 
priority  investment  needs  are  therefore  identified  to  foster  active  inclusion,  promote  the  social 
integration  of  people  at  risk  of  poverty  or  social  exclusion,  including  children,  third  country 
nationals and marginalised communities such as the Roma and enhance equal and timely access to 
quality services and social protection; and in particular to: 

  develop active inclusion policies, including a twin-track approach for persons with disabilities; adapt 

social protection to societal and labour market changes. 

  promote social integration for people at risk of poverty and social exclusion, particularly children. 

 

fight  discrimination,  especially  in  access  to  education,  labour  market  and  social  services.  Support 
social housing infrastructure, jointly with education, employment and health interventions. 

  strengthen primary care and integrated care, including through investments in infrastructure and e-

health, in particular in regions lagging behind and with a view to reducing health inequalities. 

Policy  Objective  5  –  A  Europe  closer  to  citizens  by  fostering  the  sustainable  and  integrated 
development of urban, rural and coastal areas and local initiatives 

Rapid population growth in urban areas has increased the pressure on the natural resources and land use, 
with  effects  (inter  alia)  on  mobility,  pollution  and  access  to  services;  while  smaller  urban  areas  face 
problems related to connectivity, access to services and attractiveness for business. Priority investment 
needs  are  therefore  identified  to  foster  the  integrated  social,  economic  and  environmental 
development, of the urban areas, and tackle the urban-rural linkages, and in particular to: 

  address urban challenges at functional area level taking into account the different needs, according 

to the size, specialisation and function of each area. 

Depopulation and ageing in inner areas leads to a reduction in the quality of basic services. The islands 
face increased pressure on their ecosystems, confronted with the intensive development of tourism and 
related  activities.  Priority  investment  needs  are  therefore  identified  to  foster  the  integrated  social, 
economic,  cultural  and  environmental  local  development  of  the  inner  areas,  areas  affected  by 
depopulation and low density, and of the islands, and in particular to: 

 

improve access to basic services, innovation and business development, enhanced connectivity and 
mobility, renewable energies, water supply, water treatment and waste management; 

  encourage joint actions with neighbouring regions and in sea-basin or functional areas with similar 
challenges; a better regional integration with third countries; and support to EU initiatives like Clean 
Energy for Islands and Coal Regions. 

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D. Investment guidance on cohesion policy funding 2021-2027 for Spain 

Factors for effective delivery of Cohesion policy 

 

improved administrative capacity of the managing authority, intermediate bodies and beneficiaries to 
implement EU funds in a transparent and coordinated manner, including (where relevant) a roadmap 
on administrative capacity building, and the supervision of the audit authority over regional bodies; 

  simplified administrative procedures, while putting in place improved and more efficient measures 

to prevent and address conflicts of interest, fraud and corruption; 

  stronger  institutional  coordination  and  collaboration  mechanisms  between  and  within  the  central, 
regional and local administrations, including the evaluation and assessment of the effectiveness of 
the policies; 

  active involvement of social partners; 

 

improved performance of public procurement, including effective implementation of the new law on 
public sector contracts; 

  broader  use  of  financial  instruments,  as  well  as  exploiting  synergies  with  InvestEU  for  revenue-

generating and cost-saving activities; 

 

lessons learnt through the implementation of the Commission pilot project on industrial transition, in 
particular  about  the  impact  of  new  technologies,  decarbonisation  and  the  promotion  of  inclusive 
growth. 

93 

 
 
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Anghel, B., Conde-Ruiz, J. I., & Marra de Artiñano, I. (2018), Brechas salariales de Género en España, 
Madrid, FEDEA, http://documentos.fedea.net/pubs/eee/eee2018-06.pdf 

ANED,  Academic  Network  of  European  Disability  Experts  (2018),  Country  report  on  the  European 
Semester –Spain. 

Bank  of  Spain  (2019a),  Un  Análisis  del  Impacto  de  las  Subida  del  Salario  Mínimo  en  2017  sobre  la 
Probabilidad  de  Perder  el  Empleo,  Aitor  Lacuesta,  Mario  Izquierdo,  Sergio  Puente,  Documentos 
Ocasionales 
1902, 
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es/19/Fich/do1902.pdf 

Number 

Bank  of  Spain  (2019b),  Exporting  Spanish  Firms.  Stylized  Facts  and  Trends,  Gutiérrez  Chacón  E  and 
Martín 
1903. 
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