Defense and trade war: priorities of the State budget proposal

BarcelonaNo sooner said than done. The Spanish government has accelerated its efforts to finalize its state budget for next year and end the extension of the 2023 budget. Official State Gazette The Spanish Official State Gazette (BOE) published this Wednesday the general guidelines and criteria for these accounts, which Prime Minister Pedro Sánchez stated he would present during an interview on TVE1 on Monday.

Among the priorities are items allocated to defense and aid to sectors affected by US tariffs, although he downplays their impact. In this regard, he emphasizes that, although this policy, which generates a trade war, may "weaken international trade flows, reducing the current dynamism of external demand for Spanish goods," the tariffs will have a "moderate" effect here compared to other European economies "due to the reduced exposure of Spanish exports." However, he highlights the support plan for the affected sectors, which will mobilize €14.1 billion. However, despite other geopolitical uncertainties, the government maintains that economic growth for this year will be 2.6%.

Regarding defense, the Spanish government highlights that it has responded to the challenge with the approval of the Industrial and Technological Plan for Security and Defense, which provides for an investment of 10.471 billion euros by 2025, and This will increase total defense spending to 2% of gross domestic product (GDP). as a commitment made to the European Union and NATO, compared to 0.9% in 2018. One of the priorities will be to "modernize defense capabilities" and grow the industrial fabric and employment in the security sector, according to the text published by the Official State Gazette (BOE).

Other priorities included in the order include the completion of European funds; the protection and improvement of essential public services to consolidate the welfare state; the promotion of innovation and digitalization, reindustrialization and support for research, development and innovation (R&D&I); environmental sustainability and the ecological transition; and territorial cohesion, gender equality and care for children and youth. It also states that "we will continue to support policies that promote affordable housing to respond to one of the main challenges facing Spanish society at this time, especially among young people."

In addition to the support needed if the bill reaches Congress, which will already entail a huge effort given the fragmented Parliament, the process is delayed because the stability and public debt targets, based on which the so-called non-financial spending ceiling is established, should have been approved during the first half of this year. The macroeconomic framework with the growth forecasts under which the budgets will be developed must also be finalized.

To secure support from the investiture partners, Sánchez's government has already begun to make moves. One of these is the approval of the cancellation of part of the debt of the regional liquidity fund (FLA), which for Catalonia will amount to 17.1 billion euros, and part of the agreement reached with the ERC.

The Ministry of Finance emphasizes that the growth of the Spanish economy will continue in the coming years "due to the continued high migration flows and the sustained reduction in the unemployment rate." This growth, it adds, will continue to be "sustainable and inclusive" and will be so "within the set of investments and reforms" of the recovery plan, "which is allowing the modernization and decarbonization of the productive fabric" and which is scheduled for completion in August of next year.

The draft budget will continue to promote "job creation in high-value, quality sectors with rights, strengthening and expanding the welfare state by protecting essential public services, regardless of the administration that has management powers."