Brussels loosens restrictions to allow spending of European funds.

The European Commission has relaxed the rules to ensure that most of the European funds approved during the pandemic are spent. These resources, known as Next Generation, are structured through the recovery plan and are only disbursed upon achieving specific investment and reform objectives. Brussels will allow various methods to expedite and unblock the execution of these funds, of which Spain has been allocated nearly 80 billion in non-repayable aid and another 83 billion in loans. One solution is to reallocate them for defense spending, something Poland has already done by creating an investment vehicle with 5 billion. Injecting money into this financial instrument is already considered as having executed the resources. They can also be directed toward the European space union or secure satellite connectivity programs.

Another avenue for flexibility is based on the investments and reforms that were required to access the 83 billion in soft loans allocated to Spain. These objectives can now be used to receive grants instead of loans. Non-viable objectives will be replaced with feasible ones. This way, the government could secure a significant portion of the non-repayable aid — that is, the nearly 80 billion in grants — even if some investments are difficult to complete on time. This opens the door for Spain to request more grants instead of loans in the payments. According to some sources, this possibility is already being negotiated with the Commission. However, Brussels resists changing those reforms deemed structural, such as the increase in the diesel tax. Minor reforms and intermediate investment milestones can be removed from the plans.

And what about the projects that can’t be completed in time? The third form of flexibility offered by Brussels allows these objectives to be transferred to structural funds, to be paid with resources from the 2021-2027 budget framework, which has an additional three-year execution period. This could extend the deadline to 2030, providing more time to complete them. All these changes are documented in a communication sent by the Commission to the countries, which is now public. This guide requests that all plans be reviewed by the end of 2025 and that any unachievable objectives be removed or those with low demand be adjusted. Additionally, new investment alternatives that do not reduce ambition can be proposed, or existing plans with high demand can be expanded; different avenues for AI or chip projects can be explored, and financial instruments can be created to incentivize private investments or inject funds into the ICO for European priorities.

Last week, the Bank of Spain already warned about the need to accelerate the execution of these funds. The BBVA research service estimated that at the current pace, around 10% of the non-repayable aid, approximately 8 billion, would remain unspent. The Next Generation unit of Llorente y Cuenca has estimated that about 10 billion will not be completed in time. The Commission itself has urged Spain, in its recommendations, to speed up the process.

Spain’s problem is common among all countries endowed with large amounts of European funds. According to Eurostat, by the end of 2024, Spain had effectively spent nearly 32 billion in non-repayable aid out of the almost 80 billion granted, which is about 40% compared to the EU average of 45%. When including loans, Spain has barely utilized them and has been granted 83 billion. Therefore, the utilization percentage over the total is only 20%. Countries like France, Denmark, or the Netherlands, even with a much lower proportion of allocated funds relative to their GDP, have already executed more than 70% of the total.

There are only 442 days, just over a year, to complete all investment and reform projects. Time is running out. They must be ready by August 31, 2026; all documentation must be justified, and the final payment request must be made by September 31, while disbursements can only occur until December 31. However, the initiative to swap loan objectives for grants could provide substantial relief in this situation.

Spain has already renegotiated the investment objectives and reforms up to five times to facilitate payments. Many have been rewritten or modified to make them easier to achieve. In several cases, the originally set targets have been lowered due to the significant difficulty of meeting them. This has been the case with companies undergoing digitalization, charging stations, and renovated homes. So many changes have been made that it is challenging to keep track of them. Transparency has also been neglected: the latest modifications are not even known. Objectives that have already been met are being advanced for early payment. And a further simplification process is being implemented that allows for the rewriting of objectives to ensure execution, as indicated in the Commission’s guide.

Spain is primarily lagging in the construction of 20,000 homes for social rent. It is also behind in the renovations needed to make homes more energy-efficient, with objectives set at 400,000 actions in 285,000 renovated homes. Furthermore, the strategic project to promote a chip industry, known as PERTE, faces challenges because the necessary amounts for investing in semiconductor factories are so high that attracting companies has proven impossible. Additionally, some parts of the decarbonization PERTE are facing difficulties, including one that fell through due to Arcelor’s withdrawal. Certain projects, such as some related to green hydrogen, will be carried out through public companies. In these cases, the funds are considered executed once delivered to the public company, granting three more years for completion. Furthermore, there are still reforms pending approval in a fragmented Congress, such as the diesel tax increase or the industry law.

Nevertheless, now that four years have passed since the start of the recovery plan, the government can boast significant figures: 78.115 billion euros have been launched in calls, with 51.355 billion resolved. This means that they have been awarded, although a portion still needs execution. The effort has been titanic for an administration already burdened with daily activities, resulting in 1.1 million beneficiaries being counted, 40% of whom are SMEs and micro-enterprises. There are 25,000 pre-financed social rental homes; 383,000 vocational training places created; financing for 270,000 electric vehicles and charging points; 200 municipalities that have acquired zero-emission buses and have pedestrianized streets or deployed bike lanes; 550,000 hectares of modernized irrigation; 730,000 SMEs and freelancers have utilized the digital kit, and 15,000 have used the consulting kit; 1.4 billion euros granted to promote self-consumption in homes and businesses; 851 technological teams for hospitals, and three battery plants approved.