Spain's Fiscal Watchdog Says Government Impeded Oversight Work

  • The government blocked spending on staffing for agency
  • Watchdog says Spain risks fresh deficit violation in 2016

The head of Spain’s fiscal watchdog said the government of Mariano Rajoy impeded his agency’s efforts to oversee public spending as it disregarded his warnings about a breach of European Union rules.

The Budget Ministry cut funding to the agency, known as Airef, in 2015 and then blocked spending that had been approved by lawmakers, Jose Luis Escriva told a parliamentary committee in Madrid Wednesday. The measures left the institution understaffed and unable to do its job properly, he said.

“The budget department impeded the execution of the budget passed by this parliament,” said Escriva, who stepped down from a senior position at the Bank for International Settlements to accept his current role. As a result, “the workforce is well below the minimum required to work effectively.”

Airef was set up in 2014 as a condition of the euro-area bailout that allowed Spain to recapitalize its banking industry. Rajoy’s government ignored its successive warnings over a deficit breach starting from July last year, Escriva said at a press conference earlier Wednesday.

While the fiscal authority Airef said Spain faced serious difficulties in meeting its deficit goal of 4.2 percent of gross domestic product, the acting prime minister and his finance officials insisted the government would comply despite unleashing a series of tax cuts in the run-up to December’s general election.

Ignoring Warnings

Spain ultimately missed its deficit goal for the eighth consecutive year, coming in at 5.2 percent of output instead. That was significantly higher than the 4.8 percent miss predicted by the European Commission. The breach could see the nation placed under sanctions by European authorities and adds to pressure for further cuts.

From the middle of last year, Airef flagged up that “the deficit would be in the region of 5 percent, issuing recommendations accordingly,” Escriva said at an earlier press conference. “There was a failure in turning our recommendations into action.”

For 2016, the deficit goal of 2.8 percent of output is “very demanding,” Airef said in its report. Spain risks overshooting because of the costs of funding social security and with regional spending unlikely to be offset by cost-cutting from the central government and city halls, it said.

Last month, Acting Budget Minister Cristobal Montoro blamed the regions for last year’s breach, pointing the finger at Catalonia and Valencia. Escriva said that approach is wrong.

“We mustn’t demonize the regions,” Escriva said. “There are some regions that comply, some that make real efforts and some that don’t put in as much effort and are very well financed. Some regions face tensions over financing.”

In 2016, the watchdog sees scope to reduce their shortfall, although it expects the regions to miss their budget goals all the same.

Before it's here, it's on the Bloomberg Terminal.