Spain | The European Commission's recommendations for the economy

The Spanish economy continues to demonstrate a remarkable capacity for resilience. Despite existing uncertainties, everything indicates that Spain will grow by around 2.5% in 2026, above the main eurozone economies, reaching new highs in employment. However, these forecasts must not hide pending challenges, since the progress of per capita income and productivity continues to be insufficient to ensure convergence with the most advanced European countries. This tension between good short-term results and structural challenges constitutes the starting point of the recent recommendations from the European Commission. Although they usually receive less attention than growth or deficit forecasts, they offer a particularly useful diagnosis.

The first priority is the sustainability of public finances. The Commission foresees that the debt, although it continues to decrease, will still be close to 99% of GDP in 2027. At the same time, Spain will have to face the aging of the population, the expected increase in spending on pensions, healthcare, and dependency, and new needs in defense, digitalization, energy, and climate adaptation. In these circumstances, formally complying with a fiscal rule is not enough. It is necessary to improve the composition of the budget and ensure that every public euro produces the greatest possible well-being.

The Commission recommends limiting the least effective tax benefits, evaluating them, and applying spending reviews across all administrations. It also warns against general aid with a high budgetary cost. The priority must be to temporarily and selectively protect vulnerable families and viable companies that are particularly exposed. More spending does not guarantee better results, in the same way that an indiscriminate reduction does not ensure greater efficiency either.

The tax structure equally deserves attention. The weight of labor taxes in revenue has been increasing, while the European average has barely varied. The lack of updating of the personal income tax (IRPF) and higher social contributions have reinforced this trend. In contrast, revenue from environmental and consumption taxation remains below the European average. A well-designed reform (for example, following the guidelines of the EU Electrification Action Plan) should simplify the system, reduce policies with little redistributive capacity, and prevent the increase in revenue from falling disproportionately on employment.

The second major axis is productivity. The Commission points out the administrative burden and regulatory fragmentation among autonomous communities as obstacles to investing, competing, and growing in size. Each obligation may seem minor separately, but their accumulation raises fixed costs, discourages the entry of competitors, and reduces the possibilities of expansion. The so-called Regime 20 would eliminate these barriers and the existing fragmentation.

This issue is important because productivity is closely related to the size of companies. Medium and large Spanish companies reach efficiency levels comparable to those of their European counterparts. The problem is the high proportion of microenterprises and the obstacles that hinder the growth of the most productive ones. Economic policy should facilitate innovative companies to grow, access new markets, and take advantage of economies of scale.

The improvement of justice is part of the same agenda. Spain has advanced in digitalization, but it maintains a shortage of judges, delays, and territorial differences in management systems and interoperability. These deficiencies condition the enforcement of contracts, the cost of resolving disputes, and, therefore, investment decisions. Reinforcing staff and achieving homogeneous digitalization is not merely an administrative issue. It constitutes an institutional reform with potentially high effects on the business environment and productivity.

Innovation is the third component. Spanish private investment in R&D continues to be small, is territorially concentrated, and depends too much on complex public programs. The Commission proposes increasing the investment effort, simplifying aid, and regularly evaluating its results. Increasing the budget may be necessary, but it is not enough. If the instruments are fragmented, slow, or difficult to use, a part of the resources will not reach the projects with the highest profitability.

A weak connection between universities, research centers, and companies also persists. Spain produces quality scientific knowledge but finds it more difficult to convert it into patents, new products, and companies capable of growing. Correcting this gap requires strengthening innovation, better valuing the transfer of knowledge in academic careers, and orienting part of the funding towards results.

Access to financing completes this diagnosis. Spanish companies continue to depend mainly on bank credit, while venture capital and equity financing markets have less depth. Credit is suitable for consolidated companies and projects with guarantees, but it is less appropriate for young and innovative companies, whose fundamental assets are knowledge and growth expectations. Although nowadays it is easier to get international financing for good projects, administrative burdens and regulatory fragmentation once again hinder taking advantage of it.

The Commission dedicates another recommendation to human capital. Although vocational training has progressed and the educational dropout rate has been reduced, shortages of technicians, intermediate profiles, and specialists in digital technologies, engineering, construction, and healthcare persist. Participation in STEM programs continues to be low and unequal, and adult training still does not offer enough updating opportunities. The digital transformation and artificial intelligence increase the performance of advanced skills, but they also increase the economic cost of not having them. Technology only increases productivity when it is combined with workers and organizations capable of adopting it, reorganizing processes, and spreading it from frontier companies to the rest of the productive fabric.

The recommendations on housing, energy, water, climate adaptation, child poverty, and healthcare seem more heterogeneous, but they respond to similar problems. In housing, the Commission prioritizes increasing supply, streamlining permits, mobilizing land, and expanding the social rental stock. In energy, it calls for more networks, storage, and interconnections. In healthcare and dependency, it proposes strengthening primary care, reducing waiting lists, and improving territorial coordination. In all these areas, the shortage of supply, administrative fragmentation, and the lack of evaluation reduce the effectiveness of the available resources.

In short, the Commission does not propose a single major reform that can solve the problems of the Spanish economy on its own. It presents a coherent agenda to improve institutions, competition, and the allocation of resources, simplify regulation, strengthen justice, facilitate business growth and investment, boost innovation, expand financing, improve human capital, or raise the quality of spending.

Spain has shown that it can grow, create employment, and overcome intense shocks. The challenge is to transform that resilience into sustained convergence of productivity, income per capita, and well-being. To achieve this, the priority must be to better execute the necessary reforms, evaluate their effects, and correct them when they do not produce the expected results. Ultimately, our prosperity depends less on the short-term boost of demand and more on the quality of institutions and our ability to invest and better use capital, talent, and public resources.