S&P warns that Spain and Italy may require an extension of European funding

Standard & Poor’s credit rating agency stresses that Spain and Italy may need more time to spend European money. And despite the fact that the maximum implementation of these resources is 2026 according to European regulations, ”it seems It is increasingly likely that these countries, as well as other governments that benefit from substantial EU aid, will request an extension To carry out complex investment projects that respond to the goals of climate, digitization and social cohesion, ”says S&P in a report on the implementation of the funds called Next Generation, which were granted due to the pandemic and of which Italy and Spain are the largest beneficiaries in absolute amounts accounting for 43% of the total.

The European Commission does not want to talk about extending the deadlines because it means amending legislation, and the need to agree with all countries through very onerous procedures. However, S&P believes that “the EU will be flexible when it comes to extension” as long as countries meet their high demand for quality projects.

According to rating agency estimates, Spain has implemented 7,700 million of the 77,200 earmarked as aid that it does not have to repay. That is, 10%. Italy spent 15,100 million out of 69,000, 22%. It concludes that “utilization of aid is delayed enough to meet the 2026 deadline.”

However, Standard & Poor’s considers the delay normal: “We don’t see a negative view of low execution for Spain and Italy,” he said. He explains that projects funded by the Recovery and Resilience Fund tend to be long-term and challenging to the point that they include ambitious targets for digitization, energy independence and cohesion. In any case, remember that low execution does not affect the credit rating of these countries.

The reasons for the delay, in S&P’s view, are limited administrative capacity, bureaucratic complexity involving new processes for managing this money, oversight of corruption, societal restrictions on state aid, and high inflation. The company believes uptake rates will improve once the bottlenecks are resolved. Having said that, he insists, the delay in the calendar indicates that “the 2026 deadline for full implementation is at risk.”

NextGen Resources do not require co-funding and are offered for results. According to S&P, they will increase public investment in Spain and Italy in the medium term after more than a decade of decline due to the European financial and debt crisis. He points out that these changes caused great adjustments prepared by public investment. In Spain, this was just under 3% of GDP in 2022, a figure somewhat lower than the eurozone average of 3.4%. Between 2009 and 2017, public investment fell by half from a peak of 5.2% of GDP. In Italy it was 2.7% at the end of 2022. It fell from an average of 3.2% of GDP before the financial crisis to 2.1% in 2018.

European financing does not end with the recovery fund. In addition, there are resources from the multi-year budget 2021-2027. Spain has 35,500 million, rising to 53,000 co-financed. And 2600 million to restore energy in the European Union designed to improve energy efficiency on the occasion of the war in Ukraine.

In Spain, communities administer 54% of aid from the recovery plan, which means they will have more resources to invest than ever before, the report confirms.

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