Spain "Has room to increase IVA" : EU

 

The European Commission has approved Spain's efforts to date in reforming their Banking industry, but has said how more still needs to be done.

Brussels noted that the financial markets have stabilized and that the liquidity problems of the Spanish banks have eased. However, it added that "In order to build on this momentum, it will be important to maintain the pace of reforms in order to overcome the still significant challenges and conclude successfully the program."

The report concluded that there is no need for further funding beyond the €41.4 billion it has already received.

While the government has pledged to reverse tax hikes introduced as part of its fiscal consolidation plan in order not to strangle a long-awaited economic recovery, Brussels suggested raising the reduced value-added tax further, as well as levies on the energy sector.

"The tax-to-GDP ratio as well as VAT revenue and revenue from environmental taxes in Spain are among the lowest in the EU," the report pointed out.

The EU also wants Madrid to keep tighter control on regional spending.

Despite the improvements, Brussels noted the ongoing credit crunch, pointing to an annual decline in credit of 8% last year, which encompasses a fall of 15.8% in loans to companies and 4% for households. This in turn is holding back the economic recovery.

Brussels also lamented slow progress in reforms of key service and product sectors, particularly highlighting professional services. It also sees "considerable risks" to the budget from the so-called tariff deficit, the difference between the regulated rates charged to consumers for electricity and the cost of energy production.

It noted a certain moderation in wage demands, possibly as a result of the labor reform introduced in February of last year, which makes it cheaper and easier to sack workers.

However, given the high rate of unemployment, it recommended that the impact of the reform be closely monitored.

But despite the ongoing recession and high unemployment, Brussels insisted on its austerity recipe for the Spanish economy. "Notwithstanding the significant policy progress already made, further determined advances remain necessary in the consolidation of public finances, including reinforcing the institutional framework," the report said.