Abstract: There are currently two key fiscal processes playing out simultaneously across EU countries: i) a recovery in national finances following the tremendous shock caused by the pandemic; and, ii) the reform of the EU´s Stability and Growth Pact (SGP). The interplay of these processes is particularly key in Spain –a country that has been among the hardest hit by this crisis, with GDP contracting (-10.8%) in 2020, and expected to be among the last of the EU-27 to revisit pre-pandemic GDP levels. While Spain´s recent fiscal performance has been better than expected, this will likely prove temporary, and in the absence of structural changes aimed to address the country´s high level of structural deficit, Spain´s fiscal imbalances will remain among the highest in the EU-27 in 2024. Indeed, without a reduction in the structural deficit, the total deficit would stagnate at over 4% and public debt would continue to trend higher, reaching 135% by 2050. Going forward, the EU is set to resume the task of reforming its existing fiscal rule framework, with an eye to correcting the issues of the past and taking into consideration the impact of the pandemic on many member states´ performance on current targets. As different European and national actors debate their positions, Spain´s seat at the negotiating table would be strengthened if the country were to, in parallel, present a credible path towards fiscal consolidation.

Introduction [1]
We are currently watching two processes play out in the EU public finance arena. On the one hand, a recovery in national finances following the tremendous shock caused by the pandemic. On the other hand, reform of the Stability and Growth Pact (SGP). Although the two processes have different origins, they are now intertwined.

The outlook for Spain´s fiscal deficit and debt
Spain’s GDP contracted (-10.8%) by more than the EU-27 average in 2020 and the recovery staged in 2021 (+5.0%) does not make up for even half of the ground lost. Spain looks set to be the last country to revisit pre-pandemic GDP levels. Nevertheless, its public deficit has performed better than expected in 2020 and 2021. Without a doubt, the various income protection schemes have successfully weakened the link between contracting GDP and taxable revenue and paved the way for unexpectedly good news in terms of revenue dynamics. The forecasts for 2021 improved as the year unfolded and are currently all more optimistic than the official government forecast, established in the budget, which continue to call for a deficit of 8.4%. The Funcas consensus forecast (2022) is for a deficit of 7.3%; AIReF has weighed in at a lower 7.0% (AIReF, 2022a) and the Bank of Spain (2021) is currently forecasting a deficit of 7.5%.

The outlook for reform of the current fiscal rules
On October 19^th, 2021, the European Commission officially resumed a review of its fiscal rules with the aim of coming up with a concrete proposal, debating it and reaching agreement in 2022, which would enter into force in 2023 (European Commission, 2021); although it is true that, depending on the final economic impact of the invasion by Russia of Ukraine, this timeline could be extended another year. Framed by broader reform of the EU’s fiscal policy framework, which is set to include new supranational risk-sharing and investment financing instruments (related in particular to environmental sustainability and digitalisation), the need for the reform of the EU´s exiting fiscal rules became evident in 2020 and has only been reinforced in 2022 (Feás et al., 2021). Rules that have proven complex and hard to apply, that have failed to neutralise the pro-cyclical effect of fiscal policy and whose credibility has become impaired. Rules, in short, that need to be replaced by a new framework designed to correct those issues and take stock of how the pandemic has moved many EU-27 nations’ public deficit and debt metrics further than ever from the benchmark thresholds in place since the end of the 1990s, when interest rates and potential outputs were different than those we are observing and projecting today.

State of play
The existence of differing positions among the member states’ governments regarding how the fiscal rules should be reformed and the need to reach an agreement over the course of 2022 explains the prudent tone and, above all, lack of specifics we are seeing in public posturing. As with the fewer than 400 words issued by the ministers of finance in the above-mentioned manifest, we need to comb through public statements made by Spain’s Minister for Economic Affairs, Nadia Calviño, for clues as to where the Spanish government stands. One of her clearest interventions took place at a meeting with the  President of the Eurogroup on February 7^th, 2022, (Calviño and Donohoe, 2022) in which she called for a realistic and pragmatic budget consolidation roadmap, with deficit and debt reduction pathways adapted for each country’s situation in order to shore up their public finances in the long-term, while facilitating growth, quality job creation and investment in the twin green and digital transition in parallel.

Conclusions
Budget consolidation in Spain is not merely necessary to comply with external rules. Fiscal stability is worthwhile in its own right and social and political commitment is needed to map out a credible and coherent medium-term strategy. Structurally imbalanced public accounts curtail the ability to respond to future crises, leave Spain vulnerable to international financial volatility, harm the country’s reputation and standing in international economic forums and distort the relationship between the benefits of spending and the sacrifices implied by the associated taxes, passing the burden on to future generations.