The European Commission and the German government unexpectedly got involved in Spain's electoral campaign this week, committing a series of gaffes and strategic missteps that raise questions about their credibility. It began Monday when the European Union's economic and financial affairs commissioner, Pierre Moscovici, warned that Spain's projections for economic growth and deficit reduction were too optimistic and that Madrid could miss its deficit targets for 2015 and 2016. The European Commission usually uses its reports on member states' budgets to separate Europe's good performers from the bad; some countries are praised for their efforts to introduce economic reforms while others are criticized and asked to do more. Madrid, which Brussels often presents as one of the positive performers, was not expecting the criticism.
Spain will hold general elections Dec. 20, and the conservative government of Prime Minister Mariano Rajoy is basing its electoral platform on the promise of strong economic growth. With Spain facing pervasively high unemployment and repeated corruption scandals, the ruling Popular Party is using its record of economic reform and its excellent ties with Brussels as the main campaign issue at a time when at least four parties have chances of entering the government.
Moscovici's warning was probably meant to pressure the next Spanish government to continue along the path of reform. Governments tend to loosen their belts during election years, and the commission was already worried about Rajoy's recent announcements of lower taxes for households and higher salaries for public workers. Brussels is probably concerned that the next Spanish government will be under pressure to stop or even reverse the process of reform, especially in the case of a center-left coalition.
But Moscovici's statements created a political firestorm in Brussels and Madrid, and the European Union abruptly announced Tuesday that it needed more time to assess Spain's economic situation. A report on the Spanish economy, which was meant to be released Tuesday, has been delayed. According to a leaked version of the report published in the Spanish media, the commission is worried about Spain's "incomplete" reforms.
This story is particularly interesting because Germany backed Spain in the dispute with the European Commission. Spanish media reported that German Finance Minister Wolfgang Schaeuble criticized Moscovici and asked Brussels not to be too hard on Spain, a response that is indicative of one of Germany's never-ending dilemmas when it comes to the eurozone. On the one hand, Berlin needs member states to honor EU rules on debt and deficits. On the other hand, it needs to protect its conservative peers in Europe and keep anti-establishment parties from taking over. Berlin probably thinks that an extremely tough stance on Madrid would undermine Rajoy and increase the electoral chances of opposition parties that would send Spain even further away from its fiscal targets.
Ironically, Berlin is following a similar strategy with respect to Greece. After months of taking a hard line with the "rebel" Greek government, Berlin relaxed pressure on Prime Minister Alexis Tsipras after he signed a third bailout agreement. Germany remained silent during the Greek electoral campaign in September to avoid being seen as interfering in Greece's domestic politics and said it was willing to give Athens a few extra months to comply with the call for economic reform. Tsipras and Rajoy are not alike, but in both cases Berlin would prefer to stick with the devil it knows. The recent electoral victory of Portugal's conservative government gives Berlin hope that the anti-establishment wave that is sweeping through Europe can be contained with a little pragmatism.
But some of Berlin's recent decisions have sown discontent among conservative lawmakers. Members of the ruling Christian Democratic Union/Christian Social Union parties have criticized German Chancellor Angela Merkel's handling of the Greek bailout and the refugee crisis. These lawmakers influenced Berlin's change of strategy toward asylum seekers, and they will become more vocal if they think the Merkel administration is too soft on Mediterranean nations.
In this way, Berlin's backing of Madrid could end up hurting Athens. Merkel will have to decide on a case-by-case basis whether to demand the full implementation of EU targets or to give breathing space and when to irritate her critics and when to appease them. In other words, concessions made for Spain today could mean pressure on Greece tomorrow.
The European Commission is also facing difficult choices. Brussels has long taken a pragmatic line when it comes to enforcing EU rules on debt and deficit, giving countries such as France, Italy and Spain more time to meet their targets. This is probably a result of two factors: an admission that extreme austerity is politically dangerous, and the desire to prevent clashes with large countries in Southern Europe.
The decision to delay the release of the document assessing the status of Spain's finances sets a problematic precedent for the commission. More important, should the report be modified to show a more optimistic view of Spain, it would be a serious blow to the commission's credibility. For the commission, this episode suggests that Brussels is afraid of being ignored by member states and that its pragmatic approach actually conceals its weakness. For Germany, it creates additional complications when it comes to striking a balance between strategic needs abroad and political constraints at home.