EU holds Spain to ransom as Madrid forced to CUT pensions in return for Covid bailout cash

Coronavirus impact will be ‘very tough’ on Italy says expert

Tensions are rising in Madrid where the Podemos party, the junior partner in Prime Minister Pedro Sánchez’s Socialist-led coalition, is refusing to back changes it warned will reduce future pensions for millions of people. And there are fears the fierce opposition to reform in Spain could be the first in a series of clashes between the European Union and its central and southern European member states who are the main recipients of the coronavirus cash.

Anyone planning such an action is going against a contract we have made with the citizens

Pablo Iglesias

The £665billion recovery plan was welcomed by cash-strapped member states such as Spain and Italy which have both been hit hard by the pandemic.

But the cash comes with a catch: before they can get money from the recovery fund, EU governments must prepare plans for how to spend it under the guidance of the Commission.

The plans have to meet EU requirements of making economies greener, more digitalised, improving their resilience to crises and boosting their potential growth.

They also need to take into account individual country recommendations issued by the Commission last year.

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The Commission said Germany and the Netherlands should boost investment and household income to reduce their huge current account surpluses.

It said Spain, Italy, Greece, France and Portugal had to tackle high public and private debts, competitiveness and productivity issues.

Nations which fail to implement reforms agreed with the European Commission could have future Covid recover fund payments withheld – Spain is due to receive £124billion spread over the next six years.

One EU diplomat said: “This is not only about investments in the economy — it is about reforms necessary to make sure all of us in Europe can handle the next crisis much better.”

The Spanish government insists pensions reform is long overdue and desperately needed to fix a struggling economy rather than just win the backing of Brussels.

Social security minister José Luis Escrivá told the Financial Times: “These are reforms that had to be done in any case, even if there were no EU funds.

“The commission’s recommendations are a reasonable reflection of problems in Spain with bottlenecks to growth and fiscal sustainability.”

But Podemos leader Pablo Iglesias, who is also Mr Sanchez’s deputy prime minister, warned he would not support proposals to change the way in which pensions are calculated which he said would amount to cuts for millions of pensioners.

He said: “Podemos is not going to vote in favour of a pension cut in Spain.

“Anyone planning such an action is going against a contract we have made with the citizens.”

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European trade commissioner Valdis Dombrovskis, one of the EU’s executive vice-presidents, said Covid recovery fund disbursements would be subject to the achievement of “specific and measurable milestones” and that there remained “a lot of work ahead”.

He warned some member states had to give more precise details in setting out exactly what reform measures would trigger payments from Brussels.

Member states are due to submit final versions of their so-called recovery and resilience plans by April, setting out both their request for EU funds and proposed investments and economic reforms.

Mr Dombrovskis said that 11 member states have now presented first drafts of such plans, which are guided by country-specific recommendations previously made by the commission.

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