Brussels warns that Spain could exceed its public spending in 2026 and sees perennial problems in housing and inequality

Spain has a resilient economy, but it maintains old vices and structural problems that it has not yet resolved. This is stated in the European Semester report, published this Tuesday by the European Commission, which addresses, for example, the housing shortage as one of the country’s greatest debts, as well as low productivity or social inequality that has become perennial in recent times. Brussels recognizes the progress in complicated times, but also warns of the high deficit and debt data, as well as the fact of maintaining one of the highest unemployment rates in the EU despite the reductions that have occurred, especially after the pandemic.

In addition, Brussels indicates that the Government is going to increase public spending above or committed in 2026, so you would be at risk of complying with EU tax rules, and in fact you are very close to receiving a formal notice. Thus, the European Commission asks “to take the necessary measures in its national budget procedure to ensure that fiscal policy in 2026 is in line with the recommendations” made in the report. In this context, it is worth remembering that Pedro Sánchez’s Executive has not presented a draft General Budget, so there is no new data available on which the Commission can base a more complete opinion.

The focus of Brussels is placed above all on the fiscal part, and warns that in Spain the levels of debt and deficit continue to be very high and this also clashes with an increasingly aging population. Spending on pensions and health will increase significantly in the coming decades, compromising budgetary sustainability if progress is not made in spending efficiency and greater collection capacity, warns the Community Executive. In this sense, they say, the tax system presents important gaps, especially in consumption taxation and in the fight against fraud, which limits its redistributive capacity.

There is lime and sand for Spain in the report of the Community Executive. In fact, in the labor market, he says, the high Unemployment rate coexists with significant skills mismatches, overqualification and labor shortages in key sectors. The reforms, in this and other fields, are taking place at a pace that is not as high as that required at this time for Spain and for the EU as a whole.

On the other hand, housing continues to be the elephant in the room right now in the Spanish case. According to the European Commission, the shortage of affordable housing and an estimated deficit of 600,000 units exacerbate difficulties for young people and vulnerable families, while the social housing stock remains far below European standards. Another of the most relevant warnings has to do with social gaps, since the Brussels analysis reflects that poverty and inequality remain high, especially among children, and social transfers show reduced effectiveness. Added to this are the risks derived from the ecological transition: a strong dependence on critical raw materials, delays in the circular economy, significant risk of drought in some areas and high exposure to climate risks, they conclude.

Recovery funds continue to be the great guarantee for Spain to gain momentum. The Commission recalls that they are equivalent to more than 13% of GDP and aim to promote structural reforms in productivity, green transition, digitalization and social cohesion. However, the report explains, execution faces serious bottlenecks: only 30% of the milestones have been met by mid-2025, absorption capacity is limited and administrative fragmentation between levels of government slows down the arrival of resources to companies and citizens. Although progress has been made in renewables, reduction of temporary employment and fiscal and green reforms, delays persist in areas such as justice, innovation, housing and water management.

The conclusion is clear, Spain grows, but not as it should. The labor market remains fragile and productivity is low, which adds to the social inequalities that are not corrected; The Government has made important progress in recent times, but has forgotten to resolve structural problems that can only be alleviated, concludes the European Commission, with effective use of funds.

“We are placing Europe’s competitiveness at the center of our agenda, in line with the Competitiveness Compass. In a difficult global environment, Europe must generate its own growth momentum by boosting productivity, fostering innovation and removing barriers to investment“, explained at a press conference the Commissioner for the Economy, Vladis Dombrovskis, for whom the time has come “to unleash all of Europe’s growth potential and guarantee long-term prosperity.”