Margallo Warns of the End of Cheap Money and Public Spending

Margallo, Free Money, and the Accounts No One Looks At During Campaign

Free money is over. Margallo said so on television, visibly angry, in an appearance on La Sens that left more than one viewer rewinding to catch the exact minute. The MEP, 79, warned that the European Central Bank will not continue buying Spanish debt and that the era of unlimited spending is coming to an end. The problem isn't what he said. It's that the numbers prove him right.

Why the Warning Comes Now and Not Years Ago

The striking thing isn't the diagnosis, which has been repeated since 2010. The striking thing is the timing. Margallo had been quiet for a while and only now, with the elections decided, has he become serious in front of a camera. Critics point the finger mercilessly: if this has been known forever, why did no one say it during the campaign? The uncomfortable answer is that saying it before voting costs votes. Spanish monetary policy is delegated to a central bank that cannot be influenced, and finding that out live, at eight in the evening, doesn't fix the equation.

Public Spending Accounts for 47% of GDP: Where the Money Goes

State spending is around 47% of GDP. Of that total, one-third is pensions, another third is public employees, and about one-ninth is debt and unemployment. That's seven-ninths concentrated in three areas that no candidate touches during a campaign. And a recurring detail: one out of every three euros the state spends comes from European funds. It's not just about spending more. It's spending money that isn't your own.

The other figure is more disconcerting. In 2022, the Treasury collected 54 billion euros more than the previous year, and yet, the deficit was larger than in 2021. More revenue, a bigger hole. Cutting spending would require acknowledging the problem out loud, and that, in an election year, is unthinkable. Kicking the can down the road is everyone's option.

Raise Taxes or Cut Spending: The Option No One Signs Up For

There's a debate about whether the adjustment will come from spending cuts or revenue increases. One group argues that no party will cut spending because doing so means losing elections, so the only realistic path ends up being increases in income tax, VAT, or self-employed contributions. Another group sees it the other way around: they argue that raising taxes with the current economic situation strangles consumption and that the axe, when it falls, will inevitably be on spending. Both groups agree on the essential point: the taxpayer pays one way or another.

What Would Happen If the ECB Stopped Buying Spanish Debt?

Without the European Central Bank's backing, the interest on debt would rise to put Spain in a critical situation, with a domino effect on Italy, Greece, Portugal, and Ireland, and ultimately, on the euro itself. That's the harshest scenario. The skeptical view responds that the guarantees will never be withdrawn and that this tune has been playing like a joke for years. Those with savings look at the 3.40% TAE on twelve-month terms that some German banks are already offering and rub their hands. Those who live on a public sector salary look at the same figure and don't laugh.

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With structural spending through the roof and record revenue that doesn't plug the hole, the most likely outcome is that the adjustment will come not out of conviction, but out of external obligation. When, and with what cuts, no one would sign up for today. Cheap money is ending, they say. Whatever replaces it will surely come with interest.