Looking at recent numbers on the performance of the Spanish economy, the EU sees the good and bad qualities of Rajoy's administration. On the one hand, the EU admits that some progress has been made and that it is ready to assess Luis de Guindos's request to give Spain one or two more years to reach the 3% deficit/GDP ratio. On the other hand, it holds an iron control over Spain's public accounts and in its report on the nation's adherence to banking bailout compliance standards warns Cristóbal Montoro that despite his recent claims, more cutbacks are necessary.
The European Comission is not giving any specific advice, but it is requiring spain to honor the memorandum that it signed after receiving 40 billion euros from European taxpayers in order to save its banking system. After hearing Rajoy say that he will not levy any more taxes, the EC has pointed out that the VAT still needs to go up and that taxes on combustible fuels are necessary. The EC's report shows that some reforms, such as the labor reform, could "start to show some effects" but more are needed because the labor market is still rife with redundancy.
The EU is particularly concerned about Spanish regional governments and the national social security system, because these two areas are increasing the national deficit. Concerning regional government spending, it asks for a direct application of the Budget Stability Law. For social security pensions, it says that the system needs to become more sustainable and that the retirement age needs to be extended. The EU's critics, who don't understand why an independent budget regulator has not been put in place, point to the fact that the Spanish government should not ease up on its reforms and that, contrary to what the government has announced recently, has a lot more work to do.
