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EU civil war erupts as Brussels moves to review pandemic funding allocation to Spain

The Spanish government agreed labour and pension reforms in order to access funds through the European Recovery and Resilience Mechanism – established to support EU economies hit by the pandemic. However, a review of the mechanism could see the country lose out on €50billion (£41.7billion) in funding and €70billion (£58.4billion) in low-interest loans.

The move sets the EU and one of its key member states on a collision course over how EU funds are doled out.

According to Spanish newspaper ABC, although Spanish government sources feel confident they will still be able to access the funds, EU diplomats remain sceptical about the impact the reforms will have.

Spain was initially allocated €69.5billion (£58billion) in EU grants and a further €70billion in loans.

It has reportedly already been allocated €12billion (£10billion) in funding, after being granted a €9billion disbursement last August.

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As part of the funding, the Spanish government agreed to spend the funding in specific parts of the economy: 40 percent of the grants will go towards climate change objectives and a further 18 percent to digital transformation, according to the European Commission.

However, a huge chunk of the remaining allocation promised could be taken away as part of a review by the EU.

As part of the agreement, Brussels asked Spain to commit to reforms in labour and pensions. The pension reform was approved by the Spanish parliament in its first phase.

Meanwhile, the labour reforms are beginning the parliamentary process, after the government agreed a minimum pact with companies and trade unions, ABC said.

Further demands from the EU threaten to destabilise the consensus in Spain on the current reforms.

Government sources told the Spanish newspaper that they were confident Spain would maintain its initial allocation, pointing to its progress defining and implementing a recovery plan compared with other EU nations.

The government believes that criticism of the management of EU funds is exclusively domestic, ABC said, and that the EU views Spain as a good example of pandemic recovery.

However, sources familiar with discussions between Brussels and Spain told the newspaper that EU diplomats did not hide their concern about the Spanish government’s difficulties in getting agreement for the reforms.

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They were said to have not concealed their scepticism about the effect the changes to pension laws will have on the system’s future sustainability.

The EU called on Spain to explicitly show that their permanent ERTE mechanism – a temporary workforce reduction programme, akin to the UK’s furlough scheme – would not put further pressure on public debt.

Last October, the Spanish government sought to fix the scheme for a further year, supplying furloughed workers with 70 percent of their salary.

The EU demanded that the reform reduces the rate of youth and long-term unemployment, ABC reported.

It is not the first time Spain has been at cross-hairs with the European Commission during the pandemic.

In December, Spain outright rejected making Covid-19 vaccinations compulsory for its citizens, after European Commission President Ursula von der Leyen called for a “common approach” to vaccination amid a rising tide of Omicron cases.

She told reporters: “It is understandable and appropriate to lead this discussion, how we can encourage and potentially think about mandatory vaccination within the EU.

“This needs discussion — this needs a common approach.”

The Spanish government said that its high vaccination rate meant it did not need to introduce such drastic measures.

According to Spanish media outlet 20 Minutos, Carolina Darias, the minister of health, ruled out the possibility, pointing to the “very high level of public awareness” about the vaccine in the country.

That awareness means that nearly 80 percent of Spaniards over the age of 12 are now completely vaccinated.

She told a press conference: “I understand that countries with low vaccination coverage can raise the issue and that Ms Von der Leyen is considering opening the debate, but in our country the situation is absolutely different.”

Additional reporting by Maria Ortega