EC says Spain should direct funds to boost productivity 20/02/2008 00:00

Public finances solid but at risk from ageing population

20 February 2008

MADRID - The European Commission on Tuesday gave Spain's public finances a clean bill of health but highlighted the risk to future stability posed by an ageing population and the need to enhance productivity.

In its stability programme for the period 2007-2010 approved yesterday the Commission, the Spanish government is predicting a budget surplus of 1.2 percent of GDP this year and likewise for the following two. That is based on expected GDP growth of 3.1 percent this year, 3.0 percent in 2009 and 3.2 percent in 2010.

"In Spain, the budgetary position is sound with high general government surpluses [...] and a relatively low debt ratio," the EC said in a statement.

The government is forecasting a fall in its debt-to-GDP ratio to 30 percent at the end of 2010 from 36 percent at the end of last year and from 60 percent at the start of the decade.

With less than three weeks to the general elections in Spain, the government's handling of the economy has become one of the main battlefields of the political campaign.

The opposition Popular Party has accused the ruling Socialists of mismanagement and complacency. It has also insinuated that GDP figures released recently - showing the economy held up well last year with growth of 3.8 percent despite something of a slowdown - had been massaged.

One of the main reasons for the deceleration was the end of a massive housing boom, but the Commission said the health state of Spain's national accounts left it room for manoeuvre here. "The high budgetary surplus and low debt level offer room for cushioning possible lower tax revenues following the ongoing adjustment in the property sector," the European commissioner for economic and monetary affairs, Spaniard Joaquín Almunia, said in the statement.

The Commission also focused on the low levels of productivity and competitiveness in the Spanish economy. "Fostering productivity-enhancing expenditure items such as R&D infrastructure and education is also important to underpin a smooth adjustment of the economy in the light of external imbalances, the contraction of the housing sector and the existing inflation differential with the euro area.

The EC said Spain also needed to introduce additional measures to contain the future impact of ageing on spending.

[Copyright EL PAÍS 2008]

Subject: Spanish news