Cutting the strings

The last two times Pedro Sánchez was able to pass a budget (2021 and 2022) were historic occasions. Both spending plans were unprecedentedly large, infused with millions of euros from the EU's Next Generation scheme - a system of loans and grants designed to help member states recover from lockdown and other attempts to contain Covid-19.

Three years on, the Spanish government's enthusiasm for this financing mechanism seems to have cooled. At a press conference in Toronto this week, Spain's economy minister, Carlos Cuerpo, announced: "Financially, there is no advantage for us to go for these loans, because we can do it ourselves with our own issuance of debt." Cuerpo took a different line back in June, when he claimed that the Next Gen payouts were "modernising our economy [and] helping to improve the welfare of citizens."

Spain was allocated 160 billion euros under the EU scheme, making it the second largest recipient after Italy, and has to submit all its funding requests by August next year. But according to Cuerpo, the Spanish economy is doing so well that it will probably only use 25% of its allocation - nowhere near the amount that Sánchez projected back in 2021 and 2022.

Despite the fanfare with which Sánchez announced those budgets-on-steroids, the real economic impact of the Next Gen funds is hard to quantify. This is partly due to the opacity with which they have been managed: teething problems with the software designed to log disbursements caused the EU to express concerns about where exactly the money was going.

There was a wonderful irony to this, as Sánchez claimed that large chunks of the funds would be spent on digitalisation. (I'll only believe all this talk about digitalisation when TIE renewals can be done online, rather than in person with a bulging file of forms). Actually, he had little choice about how to use the money: every transfer came with targets attached, many of them reflective of Brussels' green agenda. This is no doubt one of the reasons why Cuerpo wants to reduce Spain's reliance on Next Gen money - so it can negotiate unilaterally on debt issuance, rather than be dictated to by the EU.

Cuerpo will surely be glad to cut the Net Gen strings on a personal level, too. It took him months of negotiations to secure the fifth tranche of 23 billion in August, receipt of which required Spain to show it had met or was close to meeting over eighty milestones and targets.

It remains to be seen how Spain's assertion of independence will align with its calls for greater fiscal integration across the bloc. But it's unlikely to regret cutting the strings to a source of financing that may ultimately prove more trouble than it was worth.