The current debate in Spain between the PSOE [Spanish Socialist Workers’ Party, a social-democratic political party] and Unidas Podemos [United We Can, a democratic socialist electoral alliance] not only demonstrates the differences in opinion between the vice-presidents Nadia Calviño and Yolanda Díaz and the difficulty of reaching an agreement between social actors, trade unions and employers. It also demonstrates something else: that the European Commission (EC) has to be satisfied as well. That is to say, the EC is one of the most important actors in the current debate. Without its approval, the government of Pedro Sánchez will not receive a single euro more of the European NextGenerationEU (NGEU) funds. In June 2021, Ursula von der Leyen, the EC president, announced that the NGEU support would be conditional on the government implementing labour, pensions and tax reforms and complying with the recommendations set out in the European Semester.
This means that the funds are not freely given but come with strings attached. In June 2021, the EC approved Spain’s “España Puede” [“Spain Can”] Recovery, Transformation and Resilience Plan through which Sánchez’s government requested €69.5 billion euros in subsidies to invest in the post-pandemic economic recovery and a “green and digital” modernisation of the Spanish economy. This plan also set out 102 reforms, some of which are very significant for working people and the fabric of society in general: the pensions, tax and labour reforms, to be specific. The general outlines of these reforms have already been set out and submitted to Brussels.
For example, looking at the labour reforms we can see that in component 23 of the “España Puede” plan the government decided not to refer to “repealing the 2012 labour reforms made by the PP [Partido Popular, Popular Party]” but instead opted for talking about “correcting structural imbalances” to obtain approval from Brussels. Four weeks later, the Spanish State received the first transfer of €9 billion euros from the NGEU funds. However, in the middle of the debate on labour reforms, the EC warned the government that “the labour and pension reforms should comply with what has been agreed”, in the words of the EU Commissioner for Economy Paolo Gentiloni in October 2021 during his visit to Moncloa, and that “the EC is clear on the objectives of the labour reforms: it asks for job instability to be reduced, for collective bargaining to be improved, and above all it asks that any changes do not reduce the flexibility introduced by the 2012 reforms”.
If we are worried about the conditions involved in receiving NGEU funds, we should be even more worried about the conditions involved in returning them to Brussels. Yes, they do have to be repaid, because the European Union is financing NGEU by issuing “NGEU” bonds. These bonds are a form of pooled debt through which risks are shared by Member States. Over the next 5 to 30 years (after which the bonds expire), the European Union (or rather, European taxpayers) will need to repay the money to the financial markets.
Therefore, the EU will need to collect this money from Member States. Going by what happened after the 2008 global crash, the most probable collection mechanism will be the prioritisation of debt repayments and public spending cuts on essential public services (like healthcare and education). In fact, in August 2021, the Chancellor of the Exchequer, María Jesús Montero, argued that when the fiscal rules which were suspended for a year due to the pandemic are re-activated, “a credible plan demonstrating that the government is on a pathway to reducing debt and deficit will need to be presented to both Brussels and Parliament”. Going by past experience, it is more than likely that the cost of the economic recovery will not be charged to companies and large fortunes by progressive tax reforms but instead, a new wave of cuts and austerity policies will be imposed on us.
When thinking about future scenarios, it is vital to consider the debt generated by the NGEU funds and think about what impacts this will have on future generations and working people. The EC announced that it will issue bonds to a value of €800 billion up to 2026 to finance the economic recovery. Recently, it announced that it would issue €250 billion in green bonds to finance the NGEU funds. In practice, what we know to date is that 6 NextGenerationEU bonds (or “NGEU” bonds) have already been issued on the financial markets, with a nominal value of €66 billion.
Investment funds: The bondholders
Currently, there is no publicly available information on who the owners of the NGEU bonds are. In the initial auction of the first 5 bonds, the EC only published information on the sector and geographical region of the buyers. According to this data, 76.60% of the NGEU bonds were bought by private investors such as investment funds, commercial banks, insurance companies, pension funds and hedge funds and the remaining 23.4% were bought by central banks. By sector, the largest group of investors were investment funds (36.80%) and the most prevalent countries of origin were the UK (27.60%) and Germany (14.80%).
The lack of transparency within the financial markets makes it difficult to trace the creditors of the shared debt. The answer to the question of who we will need to repay the debt to in 2026, 2028, 2031, 2037, 2041 and 2051 (the years in which the bonds currently being traded expire) can currently only be guessed at. If the percentages were to remain as they were on the day the bonds were issued, we would need to repay €19.872 billion of the €66 billion issued so far to investment funds such as HSBC (UK) or the Allianz group (Germany). If the debt is sold to powerful funds from the USA, we could owe BlackRock, Vanguard or Fidelity Investment.
Reasons for concern
Why should we be worried? Firstly, because this is an intergenerational justice issue: it is the generation to come which will have to repay the money borrowed from these creditors over the coming decades. Have we asked them if our current economic recovery policies (and the reforms associated with them) are in their interests? In our opinion, no.
Secondly, given the current context of over-indebtedness, falling GDP, economic recession and future costs related with the climate emergency, it is quite improbable that we will be able to generate sufficient wealth through the productive economy to repay the sums borrowed from the financial markets within the established timeframe. Given the huge power wielded by private investors such as BlackRock in our current politico-economic system, it is unlikely that the European institutions will confront them in order to request that the debt be restructured or written off. The EU will refinance Community debts: that is to say, we will put ourselves deeper into debt to pay off old debts, turning them into a perpetual debt.
If we think back to the words of Ursula con der Leyen, who presented the European NGEU funds in July 2020 as a “temporary instrument”, we are right to be concerned about the truth of her words. We should also have made more effort to finance the post-pandemic recovery and economic transformation using different instruments which do not involve as many short-term conditions and long-term risks.
We hope that the government will bear this in mind as it starts work on its next task: tax reform.