Available estimates show that at the outset of the crisis Spain had a high structural deficit of around 3% of GDP.8 The expected increase in public debt resulting from the current crisis will also trigger a rise in the interest burden. The pandemic will also likely lead to greater structural demand for basic welfare expenditure, such as on healthcare. Moreover, spending on pensions will increase over the coming years as a result of the combined effect of population ageing and the suspension of the application of the revaluation index and the sustainability factor. Certain measures permanently raising the level of expenditure have also been announced, such as the introduction of a minimum living income, which has yet to be defined. 7  See Banco de España (2019), “Economic consequences of demographic change”, Annual Report 2018, Chapter 4. Various estimates are available of the size of the structural budget deficit as a result of applying different calculation methodologies. It is estimated at 3.1% of 2019 GDP by the Banco de España, at 2.5% by the IMF and at 4.2% by the European Commission. 8  34  As I mentioned, future improvements in welfare stemming from reducing public debt will have to come not only from decreasing the structural deficit, but also from achieving greater economic growth. That makes it advisable to maintain the resources earmarked for such items as education and research.
According to projections by the National Statistics Institute, in the next 50 years the over-65 population, which currently accounts for less than one-fifth of the total population, will grow to represent more than one-third. This phenomenon will exert – and is already doing so – an adverse effect on the economy’s participation rate, employment and productivity, and most singularly on public finances, raising spending on pensions, health and long-term care. The scale of this challenge means a broader and longer-term strategy must be defined where, along with revising the arrangements for our welfare state and its financing, in order to ensure its sustainability, it will also be particularly important to have policies encouraging worker participation in the labour market, to align migratory policy with labour market needs and to pursue policies promoting the birth rate so as to draw it closer to the rates in other European countries. The Spanish economy also evidences very poor figures in terms of productivity. Reversing this dynamic will require measures in various areas including, among other aspects, improvements in education, the quality of institutions, competition in product and service markets and investment in research, innovation and development, along with a reduction in temporary employment in the labour market. I would like to conclude by stressing the importance of making Europe’s challenges our own. In short, on the economic front, this currently involves two goals: completing the Banking Union and shoring up the fiscal stabilisation capacity of the euro area countries.