Spain currently has 1.100 billion euros of European funds up in the airWe are awaiting developments in Brussels and the Spanish Congress in the coming weeks. This is not a simple administrative delay, but a potential permanent loss of key resources. recovery plan if two specific reforms that the European Commission has been demanding for some time are not implemented.
That money is part of the fifth payment of Next Generation EU funds, authorized in July 2025. Although the total disbursement exceeded 24.000 billion, the Commission decided to provisionally withhold some 1.100 billion after finding that Spain had not met two very specific milestones: the diesel tax increase to equate it to gasoline and reform of the civil service aimed at curbing the abuse of temporary contracts in the administration.
How did the €1.100 billion freeze come about?
When Brussels approved the fifth disbursement of the recovery plan, it made clear that a part of the payment was frozen until Spain completes the two reforms it committed to in the Recovery and Resilience Plan. The amount withheld is around 1.100 billion: approximately 450 million linked to diesel taxation and some more of 600 million linked to the reform of the civil service and temporary workers.
The mechanics are planned in the Regulations of the Recovery and Resilience FundIf a Member State fails to meet one or more milestones associated with a funding tranche, the Commission may approve the payment but withhold proportionally the amount corresponding to the unmet commitments. This withholding is, in principle, provisional and reversibleprovided the country corrects what is lacking in time.
In July 2025, Spain received more than 24.100 billion from the fifth payment, but with a clear warning: there were six months to rectify the breachesThe deadline for the civil service reform was January 7, 2026, and the deadline for the diesel reform was January 31. To date, neither reform has been approved by Parliament.
At other times, tranches of blocked funds They were finally unblocked once it was confirmed that the pending reforms had been completed. One example cited by the Executive itself is the program of agents of change for the digitalization of SMEs, which had some 158 million withheld and which were subsequently released once the Commission's doubts were resolved.
The diesel tax, a deeply entrenched commitment
La equal tax treatment of diesel with gasoline This is an old demand from Brussels that Spain has been dragging along since before 2020. The EU's objective is that the tax applied to diesel fuel should no longer be subsidized compared to gasoline, in line with the climate commitments and the ecological transition included in the recovery plan.
The government of Pedro Sánchez included this measure in the tax reform associated with the Next GenerationHowever, the parliamentary process has been complex: although measures such as the extraordinary tax on banks were approved in November 2024, the increase in the tax on diesel fell due to Podemos' veto and was never recovered in subsequent votes.
Since then, the Executive has tried to find an alternative way to reintroduce the diesel price increaseBut parliamentary arithmetic has prevented it. The fragmentation of Congress and dependence on several partners make it very difficult to assemble a stable majority for measures unpopular with some citizens and certain economic sectors.
The Treasury has reiterated to the European Commission that it will not abandon this part of the tax reform. In the addendum sent to Brussels at the end of 2025, the Ministry committed to a increased revenue of around 1.600 billion In the first half of 2026, through a review of certain tax benefits, the equalization of diesel taxes could be included again. However, this promise has not yet resulted in an approved law.
Civil service reform and the problem of temporary workers
The second major obstacle has to do with the Record number of temporary workers in public employment And, in particular, with the situation of temporary civil servants in Spain. The European Commission has long warned that the country has one of the highest rates of temporary employment in the EU within its public administration, with a repeated use of long-term contracts that is considered abusive.
Spain approved in 2021 the Law 20/2021 on urgent measures for the reduction of temporary employment in public sectorwhich initially received the green light from Brussels. However, the Court of Justice of the European Union questioned whether this legislation was sufficient to deter abuse, especially because it did not include clear and effective sanctions against non-compliant administrations or adequate compensation for affected staff.
Following that ruling, the Commission reviewed its position and demanded that Spain a more ambitious reform of the civil servicewith a very specific focus: to truly reduce temporary employment, better define the causes of temporary hiring and establish real consequences for administrations that continue to abusively resort to temporary workers.
The Ministry for Digital Transformation and Public Administration responded with a proposal that included two main pillars: on the one hand, Further restrict the legal grounds for hiring temporary staffOn the other hand, to introduce administrative sanctions Specific measures were proposed for those administrations that fail to meet the targets for reducing temporary employment. What was expressly ruled out was extending compensation to temporary staff, one of the aspects that generates the most concern in Brussels and at the CJEU.
Instead of a large, single-issue bill on temporary staff, the Government opted for to fit these changes into broader reformssuch as the organic law governing judicial and prosecutorial careers and a future Civil Service Law for the State Administration. The idea was to introduce additional provisions or partial modifications, taking advantage of texts already underway in Parliament.
The amendments and the gridlock in Congress
This approach has also generated intense political debate. The draft bill to reform the judicial and prosecutorial careers reached Amendments from parties such as Junts, Podemos and Sumar proposing to convert into "permanent employees to be phased out" those public employees who are in a situation of abuse of temporary employment for more than three years, regardless of the administration they depend on.
These amendments, published in the Congressional Bulletin in March 2025, sought to respond to European rulings on temporary staff, but have contributed to further complicate the negotiationThe Government is trying to reconcile the demands of Brussels, the rulings of the CJEU, the demands of the affected groups and the positions of its parliamentary partners, without having reached a solid consensus so far.
The official deadline set by the Commission to meet this milestone expired on January 7, 2026From that date, the breach is considered complete and opens the door for the withholding of the associated funds to become permanent if a convincing solution is not presented within the additional time provided.
The Ministry of Public Administration emphasizes that the Executive "is working" to incorporate the measures required by Brussels in both the reform of the judicial and prosecutorial careers as in the future State Civil Service Law, both of which are still in process. At the same time, they point out that the excess of temporary workers is concentrated mainly in autonomous communities and local entitiesTherefore, they request your active collaboration.
Meanwhile, the Commission is closely monitoring Spanish legislative developments, awaiting a reasonable assessment of whether the requirements have been met or, at least, whether there is sufficient progress to reconsider the scale of the cut.
What exactly does Brussels say, and what room for maneuver remains?
The withholding of the 1.100 billion does not mean that Spain has automatically lost that money, but it does place the country in a high risk areaIt is now up to the European Commission to draw up a official evaluation on the missed milestones and propose, if deemed necessary, a "proportional reduction" of the final payment.
According to the Recovery and Resilience Facility regulations, once Brussels reaches a preliminary conclusion, a process begins additional period of two months so that the Member State can submit allegations, supplementary documentation or corrective plans that may qualify or reduce the proposed adjustment.
Community sources indicate that, in these types of processes, the Commission analyzes not only formal compliance with the approved laws, but also actual progress of the reforms, the regulatory projects underway and the proven willingness to tie up the remaining loose ends within a reasonable timeframe.
The Spanish government maintains that it "is not giving up on the funds" and will do "everything possible" to recover 100% of the withheld money. This involves demonstrating to Brussels that it has taken the necessary steps. clear legislative measures or at least that there is a reliable and consistent timeline for approving them in the short term.
The experience of other episodes in which funding segments were blocked and then unblocked works in Spain's favor, but the internal political context, with a highly fragmented parliament and socially sensitive reforms complicate the task.
The impact of European funds on the Spanish economy
Since the start of the recovery plan, Spain has received over 55.000 billion euros in subsidies non-refundable and some 16.270 billion in low-interest loansIt is one of the largest allocations in the entire European Union, designed to boost digital transformation, the green transition and the modernization of the economy after the blow of the pandemic.
The amount withheld, those 1.100 billion, may seem relatively small compared to the total volume, but it has a very significant symbolic and practical value: it represents a Brussels' call for attention on the strict compliance with commitments and sends a message to the rest of the community partners.
If that part of the fifth payment is ultimately lost, Spain will see its capacity reduced. finance projects already scheduled or in the execution phase, which would force the reallocation of funds, delay investments, or resort to other budgetary resources to fill the gaps.
Beyond the specific figure, what is at stake is the country's credibility with European institutionsBrussels maintains ongoing technical and political dialogue with the Spanish government to assess the pace of reforms and the implementation of the plan. A definitive cut could intensify future scrutiny and jeopardize negotiations for potential additional support.
The plan's design itself has already been adjusted recently. Spain has decided significantly reduce the number of loans which it aims to reduce from the initially planned 83.000 billion to around 22.000 billion, while maintaining the volume of subsidies intact (approximately 79.854 billion). In that review, the Executive also attempted to ease commitments that required complex parliamentary majoritiesprecisely because he is aware of the current political fragility.
Political and economic consequences of a possible loss
Domestically, the potential loss of these 1.100 billion would provide ammunition to the opposition to question the Government's management and its ability to comply with what was agreed in Europe. Parties like the PP and Vox have already criticized the delays, while the government's parliamentary partners are pressuring for the reforms to be tailored to their own agendas.
In economic terms, the impact would be felt most in public administrations and projects already committed that had those resources, although the immediate macroeconomic impact would be limited compared to the plan as a whole.
Where it might be more noticeable is in the Spain's image as a reliable recipient of European fundsAn upward correction in the perception of political or institutional risk can influence both investment decisions and Brussels' future flexibility in accepting changes to the timetable or reinterpretations of commitments.
For the autonomous communities, which manage a substantial part of the recovery projects, a definitive cut would force them to rethink prioritiesSome digitalization, energy transition, or public service modernization initiatives could suffer delays or budget reconfigurations.
The government insists there is still room for maneuver, both legislatively and through negotiations, but privately acknowledges that the situation is becoming more complicated as The calendar advances and the deadlock in Congress continues.
The current situation leaves Spain in a delicate balance: has been one of the countries that benefited the most Thanks to European funding, and in general, it has been meeting the plan's milestones, but now it faces a very visible test. The way the diesel tax and the civil service reform are resolved will determine not only the future of those 1.100 billion euros, but also the tone of the relationship with Brussels for the remainder of the recovery plan.
