Spain’s Recovery Plan Tells Us What Europe Hasn’t Learned From the Last Crisis

Europe’s post-pandemic recovery plan has been hailed as a break with its austerian response to the financial crisis. But in Spain, a focus on investment to help big business rather than essential services shows the continuing influence of neoliberal dogmas.

The Minister for the Ecological Transition, Teresa Ribera, and the Minister of the Interior, Fernando Grande-Marlaska, during a presentation of the projects included in the National Recovery, Transformation and Resilience Plan in Madrid, Spain, November 2021. (Isabel Infantes / Europa Press via Getty Images)

The pandemic hasn’t just brought a massive loss of life but also a historic economic downturn — including in Spain. The year 2020 saw the country’s economy shrink 10.8 percent, with unemployment surging above 4 million and public debt reaching 120 percent of GDP, as a result of efforts to sustain the economy and maintain social benefits and services. Here, as across the European Union (EU), this poses the question of whether the bloc’s Next Generation EU (NGEU) funds will resolve the crisis — or end up deepening it.

Indeed, the EU’s past crisis response measures aren’t memorable for positive reasons. We need only think back to the unpopular austerity imposed on Greece — or, in Spain itself, how Article 135 of the Constitution was amended to prioritize debt interest payments over social investment.

Yet, faced with the pandemic, the EU has outwardly dispensed with austerity dogma, for now at least. It has done so with a view to avoiding more severe repercussions for not only the EU economy but the economies of the individual member states — and shifting Europe’s growth model toward a green economy and digital transformation.

One first sign of this is the fact that, after months of debate, member states and the European Commission (EC) took the historic decision to issue debt jointly, mutualizing EU debt to the tune of €900 billion by 2026. It is envisaged that this expenditure will be covered by common EU taxes, rather than increase individual member states’ debts.

A second development is the suspension — since March 2021 — of the Stability and Growth Pact, which set ceilings on member states’ deficits (3 percent of GDP) and public debt (60 percent of GDP).

Through the Recovery and Resilience Mechanism (RRM) attached to the funds, the EU also claims to be putting each country’s central government in charge of its economic direction, through plans like Spain’s Recovery, Transformation and Resilience Plan (PRTR). But with the allocation of funding subject to constant monitoring, we have good reason to doubt whether this will really be the case.

Spain’s Plan

Of the €750 billion funding to be provided through NGEU, €390 billion will come in the form of nonrepayable grants, and the remaining €360 billion as repayable loans. Across both types, the lion’s share — some €672 billion — falls within the scope of the RRM. Its stated aim is to reinforce the Just Transition Fund and the European Agricultural Fund for Rural Development (EAFRD), thus supporting rural areas in making the appropriate structural changes, in line with the objectives of the European Green Deal. The other two pillars relate to kick-starting the European economy and learning lessons from the crisis.

To receive financial support under the RRM, member states were required to submit national plans setting out their investment and reform objectives. In June 2021, the Spanish government submitted its own #PlanEspañaPuede (#PlanSpainCan). This was soon approved by the EC and, subsequently by EU finance ministers.

Spain’s plan only includes the direct transfer portion of the NGEU fund, i.e. €69.5 billion of the total €144 billion it was allocated, and not the loan portion. However, if this plan does not achieve the desired economic impact, it’s possible the government will submit a new plan to access the remaining €70 billion in loans. This would mean increasing Spain’s public debt — in turn risking the imposition of “structural reforms” or austerity-driven fiscal and spending policies. Such EU control mechanisms would entail a further loss of economic and political sovereignty.

Who Benefits?

Yet even in the Spanish government’s currently outlined plan, there appear to be a number of controversial aspects, especially in terms of the aid it offers to the largest business interests.

In Spain, the economic weight of small and medium firms (SMEs) is relatively high; their contribution to employment and business gross value added stands five percentage points above EU averages. According to Social Security data for 2020, there were 2,884,099 enterprises in Spain, of which only 0.16 percent were large companies and only 0.99 percent employed more than fifty workers. Almost all Spanish businesses (99.84 percent) are SMEs employing fewer than two hundred fifty people.

The substantial clout of SMEs and microenterprises within the Spanish economy poses specific challenges. Therefore, the plan devotes one of its components specifically to the SME sector, which will receive an estimated €4.9 billion in investment, i.e. 7 percent of all funding in the plan. Yet, the plan does not include effective mechanisms, criteria, or goals to ensure that it allocates investment to SMEs in line with their economic weight, rather than merely aiding the largest firms.

Indeed, half of all funding is managed through Strategic Projects for Economic Recovery and Transformation (PERTE). Geared to boosting economic growth, employment, and the competitiveness of the Spanish economy, these require public-private partnerships in the face of what the plan calls “significant risks that hinder private initiative.”

These projects are most likely to be cornered by large companies with a greater capacity to undertake them, so that a considerable proportion of the total funding available (i.e. the funding for large-scale projects of greater strategic value) will effectively bypass smaller firms and the cooperative sector, feeding an upward transfer of power and the “corporatization” of the economy.

Green, New, and Unaccountable

The EC has further decided that member states’ plans should not only address the socioeconomic fallout of the pandemic. Rather, at least 37 percent of investment in each national plan must be allocated to the green transition and 20 percent to digital transformation.

The green investments proposed by the Spanish government’s plan in fact exceed this target, coming to 40.3 percent of the total budget. This includes measures such as the implementation of the Spanish Circular Economy Strategy (in particular relating to waste disposal) and the enactment of the Law on Sustainable Mobility and Transport Financing, as well as compelling cities with over fifty thousand inhabitants to create central areas with restricted access for high-emission vehicles.

But the key problem is the lack of detail provided in the specific conditions for access to funding. Concern has also been raised about big business’s strong influence on the drafting and implementation of the proposals.

According to an NGO report entitled Hijacking the Recovery through Hydrogen, the Big Four accountancy firms — KPMG, Deloitte, PricewaterhouseCoopers, and Ernst & Young — have been involved in planning and deciding how the funding will be distributed. This represents a “glaring conflict of interest,” since the big energy companies applying for subsidies are clients of these same accountancy firms.

Moreover, no system is in place to monitor and assess the plan’s social and environmental impact on the basis of publicly available indicators — something which would also involve designing a mechanism for monitoring, supervising, and evaluating the projects benefiting from these resources.

Lastly, despite the emphasis placed on the fight against climate change and the transformation of the agri-food system, the plan does not include investments in promoting organic farming or agroecology. According to the Intergovernmental Panel on Climate Change (IPCC), emissions from the global agri-food system (which includes food processing, packaging, transportation, and distribution) account for between 21 percent and 37 percent of total net anthropogenic greenhouse gas emissions.

Instead, the plan puts forward a business-as-usual roadmap which in effect endorses the existing model of agribusiness. This stance, too, has elicited protests, such as the response from Friends of the Earth Spain and other food-justice and ecological groups insisting that “financing industrial livestock farming in Spain will only serve to exacerbate the serious problems of global health, the climate emergency, biodiversity loss and rural depopulation.” In this sense, the recurring concept of sustainable growth often reiterated in government plans and public discourse should itself be put into question.

As for digitalization, we might ask what the Spanish government means by this term. The goals it has presented relate to digital connectivity, boosting 5G technology, digital training, cybersecurity, a digital transformation of the public sector and businesses, and the data economy.

Spending on digitalization-related projects accounts for 28 percent of the PRTR. Yet for months, the business sector has been questioning how to bring about such structural change (and for whose benefit) in the current climate. Other questions are also being raised, such as the purpose of the digitalization process and its interaction with the labor market, as well as the concentration of power in the hands of a few corporations. After all, only a few companies — mainly from the United States and China — control the entire digitalization process, from the raw material (data) and the spaces (platforms) to AI innovation.

How the Funds Are Used

In line with the EC’s territorial cohesion targets, the PRTR sets out to “[f]oster sustainable mobility and connectivity, contributing to the balance between urban and rural territories, and modernize the primary sector.” To this end, the plan discusses the creation of new governance bodies, such as a central Sectoral Conference, chaired by the Finance Ministry, to coordinate with the regional and minority-national governments together known as the Autonomous Communities, in charge of distributing a large part of the European funds.

This is especially important as many of these regions are governed by the right-wing Partido Popular (PP). In these, both Socialists and Unidas Podemos — the parties who form the central Spanish government — are calling for efficiency and transparency in the allocation and execution of funds. The same is demanded in Socialist-governed Navarre by the Basque-nationalist EH Bildu. In each case there is also a dispute over who gets the biggest slice of the cake: the center-left Esquerra Republicana has, like other minor forces, conditioned its support for Spain-wide budgets on the amount earmarked for its own patch, Catalonia.

Yet beyond this, it is unclear what mechanisms Spain’s central government envisages developing to ensure “capillarity” and bring about a balanced territorial distribution of competencies. There are no figures on how the management of the plan’s resources will be shared across the various public services.

Also telling of the plan’s lack of detail is the case of gender equality, cited as one of the plan’s four main strategic objectives. It is implied that a wide range of measures will have a positive impact by introducing gender mainstreaming into public recruitment and procurement, but otherwise we are left to wonder what the government is going to do to pursue this agenda.

The fact that, in the wake of the crisis, the funding does not prioritize the consolidation of public welfare systems (health care, education, homes for people with special needs, etc.) does not help either. Instead, it seems that the domains that have borne the brunt of the pandemic, and which most relate to sustaining life, are the very ones that are being neglected.

Yet, there have been some specific measures. Minister of Equality Irene Montero announced the creation of the Spain Protects You Plan against male violence, with the aim of “improving care and support for all women.” The funds will be used to build 24-hour comprehensive care centers for women victims of sexual violence, expand services to attend to victims of trafficking and sexual exploitation, and improve measures for the care and protection of victims.

Conditions Attached?

In August 2021, Ecologistas en Acción warned in an online news item that, “coinciding with the EC’s announcement of the disbursement of the first €9 billion of pre-financing for Spain,” the Bank of Spain had indicated that, in June 2021 alone, the country’s public debt had increased by almost €23.5 billion. It went on to point out that this burden might have to be carried by the Spanish public.

The Spanish government continues to extol the “historic” agreement, while in opposition the right-wing PP — habitually aligned to pro-austerity governments abroad, as well as an insistence that nations in the Global South have not made the required “reforms” — is fueling criticism of the spiraling debt. “The sooner we start to get out of debt, the sooner we will see a clearer horizon. This business of not following any rules is going to end — and the sooner, the better,” warned former premier José María Aznar at the PP convention.

This also set the tone for party leader Pablo Casado, who has accused the government of “having deceived the Commission with its debt and deficit forecasts.” This is the game being played by the Right, which, already in campaign mode ahead of the 2023 general election, is recklessly disregarding the risks that this flirtation with austerity poses to Spanish society.

However, two points must be stressed on the issue of debt and conditionality.

Firstly, the provision of this funding is closely supervised, including through the so-called “European Semester” budget monitoring process. Every six months, the Spanish government’s plans are submitted to the Eurogroup for approval by qualified majority vote.

Spain’s funding depends on compliance with the “recommendation” issued by the European Commission and Council during the 2019 and 2020 European Semesters — including the commitment to flexibilize the labor market and reform the pension system. Moreover, the approval of a mutual veto system covering the various EU member states creates a playing field that has so far worsened existing relations of subordination, in which Southern and Eastern Europe continue to have the EU’s most precarious socio-economic models.

Secondly, while the EU currently speaks of an “exceptional” situation, this only leads us to wonder what will happen when the deficit-limiting Stability and Growth Pact is eventually reinstated. The EC has declared that it will remain suspended for now; but it might be time to start asking whether the debt situation will lead to a transfer of powers, and whether the oppressive deficit straitjacket will once again be used to squeeze the life out of legitimate governments. To this we can add the unforeseeable consequences of the current distribution of funding.

So, we might ask: Is it really possible to gear this kind of funding to a transformative future? Realistically, both this funding mechanism and the EU’s own structures remain something of a patch-up job — doing nothing to break from a model obsessed with business-led growth and tied to a conception of social welfare contingent on profit-making. This is yet another stopgap solution to a vast crisis — with only tepid social democratic steps again depriving us of the chance to define alternative priorities.