(Bloomberg) — Spain is facing a setback in its efforts to free up European Union funds for post-pandemic recovery as it becomes increasingly unlikely that the government will complete an overhaul of unemployment benefits needed for a full payout.
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The EU executive arm and the Spanish government have concluded in ongoing technical discussions that a partial payment is the most likely scenario, as a two-month extension granted by Brussels in March will not be enough for the revision, insiders with knowledge of the matter said .
The change to unemployment benefits is part of the fourth payment request submitted by Spain in December totaling 10 billion euros ($10.7 billion). Parliament did not support the reform after it failed to win the support of Podemos, a left-wing, anti-establishment group that is among several parties that socialist leader Pedro Sanchez relies on to pass laws .
Spain was the flagship of the 800 billion euro recovery fund as the country, which was the second largest recipient with 163 billion euros in grants and loans, led reform efforts among the 27 member states. But the fragile majority in parliament makes it difficult to implement the plan.
If the agreed reforms are not completed on time, the European Commission would initiate a suspension of the relevant financial assistance related to the unimplemented reform. The Commission shall determine the amount to be suspended once the assessment of the payment application has been completed.
According to the rules, Spain could still receive the full amount of the fourth payment request if the government completes the reform within six months of the suspension decision while it continues to implement the rest of its recovery plan. Otherwise the suspended part would be lost.
The government is currently discussing the review of unemployment benefits with employers and unions, but has yet to win the support of its allies for parliamentary approval.
A Spanish government official said partial payment was one of the options, but they were still working on fully achieving the milestones.
Other countries, including Lithuania, are subject to the suspension procedure. The Commission found that two milestones of its first payment request had not been met.
A commission spokesman declined to comment before the institution makes its preliminary assessment of the payment request.
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