Cooking the books

This week saw the newest installment in the saga of Spain's misspent Next Generation EU recovery funds. A 754-page report by the Spanish court of auditors has revealed irregularities in the government's 2024 spending, including the alleged use of 2.4 billion euros from the Next Gen scheme, with which member states were meant to finance their post-pandemic recovery, to cover civil service pensions. The revelation has reignited a row across Europe about tighter fiscal integration, with Germany and the Netherlands emerging as Spain's strongest opponents.

The report claims that Spain's 2024 budget, a rollover from 2023 due to Pedro Sánchez's inability to pass spending plans, cost 77 billion euros more than expected. According to the auditors, this extra expenditure was covered by EU debt and Next Gen funds.

In total, it is alleged that Madrid redirected up to 10 billion of EU money to meet budgetary costs, operating all the time without a state-approved blueprint. "The failure to submit the mandatory 2024 budget Budget Bill prevented its debate in [Congress]," says the report: "[This] causes, among other circumstances, uncertainty regarding the applicability...of certain rules linked to budget management."

The EU has repeatedly expressed concerns about the lack of transparency with which Madrid has managed its chunk of Next Gen cash (Spain was the second-largest beneficiary, after Italy, with a total allocation of 163 billion euros in loans and grants). Surprisingly, though, Brussels backed Madrid's claim that giving itself an advance from the recovery funds was "routine and fully lawful".

Raffaele Fitto, vice president of the EU Commission for Cohesion and Reforms, stated that "it would be possible for member states to temporarily use some of the liquidity from these disbursements to cover an unexpected increase in their budgets". He added, however, that pension bills are not eligible for Next Gen funding. In any case, one can ask: "Why was there a sudden increase in the budget, given that Sánchez is not able to approve any such spending hikes?"

Politicians in Germany and the Netherlands have seized on this development to bolster their opposition to joint European debt issuance. Alice Weidel, leader of Alternative für Deutschland, posted on X that "German taxpayer's money is financing socialist mismanagement in Europe", while Dirk Gotink, a Dutch member of the European People's Party, said that it "emphasises the point that [Next Gen money] is budget support". Michael Jäger, president of the European Taxpayers' Association, called it a "first-order scandal".

Even if this underhand redirection of funds is found to have been lawful, it highlights the problems caused by Sánchez's lack of a fiscal mandate. Passing a budget is an absolutely basic test of a government's competence - one that the Socialist leader has failed every year for the last three years. When you factor in the recent Koldo corruption trials, it's a wonder that Sánchez still occupies Moncloa.