By Belén Carreño and Charlie Devereux

MADRID (Reuters) – A request for seaplanes needed to fight forest fires is red-flagged because it could harm the environment. Companies seeking aid after being hammered by COVID are asked to show proof of a healthy balance sheet in recent years.

They are among the discordant calls made by Spanish and EU bureaucrats as Spain’s drive to hand out 77 billion euros ($84 billion) in grants from EU pandemic recovery funds becomes mired in complexity, according to interviews with business associations, government officials, companies and consultants.

Spain is the EU pilot project for disbursing grants from the largest stimulus package in the bloc’s history, an overall pot of 724 billion euros, including loans. The country was fastest out of the blocks in meeting Brussels’ policy requirements and in receiving its funds, making it a test-case for what Europe can achieve.

“We are the guinea pigs. Everything that is tested in Spain will then be applied to the other countries,” Economy Minister Nadia Calviño said in February. “But it is in our interest that these funds are used to the maximum.”

A year into the disbursement process, about 23.5 billion euros had been awarded as of December last year, according to the latest figures published by the government last month. That’s a sluggish pace, given the EU and Spain have set a deadline of the end of this year to award all 77 billion euros.

Only 16.5% of companies have applied for grants and 7% have been accepted, a Bank of Spain survey of 6,000 businesses in February found. Meanwhile, only about 9 billion euros have actually reached the businesses awarded funds, according to calculations by the Esade Centre for Economic Policy, a Madrid-based think-tank that tracks the pandemic recovery cash.

Meanwhile Italy – which has been allocated roughly 69 billion euros in grants – has deeper problems, with the EU freezing a tranche of the cash and requesting clarification over Rome’s efforts to meet the “targets and milestones” needed to unlock the money.

The travails of the southern European nations, one in unlocking funds and the other in injecting cash into the real economy, could test the resilience of the EU’s stimulus plan, aimed at building a post-pandemic Europe that’s greener, digital and more self-sufficient.

In response to queries for this article, Spain’s government said it was applying EU rules that tried to “combine agile management of the funds together with guarantees of control”, adding that almost 300,000 Spanish projects had been financed.

New Italian Prime Minister Giorgia Meloni has blamed her predecessors Mario Draghi and Giuseppe Conte for the delays.  

The European Commission said member states tailored their own schemes to control funds, and that both the EU and Madrid had deemed Spain’s systems adequate. The implementation of the countey’s plan is currently in line with the agreed timetable, it added.

In Spain, on top of the human bureaucrats, there’s now also Minerva, a tech system that Madrid was required to build by Brussels to vet grant applications and was rolled out in February after about two years of development.

The algorithm, named after the Roman goddess of wisdom and justice, can scrape millions of data points to check that companies applying for funds have no conflicts of interest.

Then there’s another system called Coffee to audit applications and keep track of where the money is, often requiring significant amounts of paperwork from companies.

“There are bottlenecks at all levels,” said Manuel Hidalgo, a senior fellow at the Esade Centre, adding that the modern challenge of disbursing billions into an economy had collided with a public administration stuck “in the 19th century”.

“The economic consequences of this could be that companies become disaffected with these forms of help.”

NANOSATELLITES HIT RED TAPE

There have been successes. For instance, a 3-billion-euro scheme to help small companies take their businesses online has handed out grants to more than 180,000 to build websites or payment platforms, according to the Economy Ministry.

The rapid rollout of the grants in just five or six months was made possible by the automation of some processes, bolstering the credentials of the new technologies deployed.

Still, the program has only disbursed about a third of budgeted funds for the digital project, according to data compiled by CEOE, Spain’s main employers association.

Many other companies have abandoned plans to apply for grants, particularly smaller firms without the resources to deal with the large amounts of paperwork, according to the Cepyme and ATA associations representing small businesses.

Julian Fernandez, CEO of Fossa Systems, a Madrid-based company that builds lightweight nanosatellites, said he had to dedicate one of his 24 employees exclusively to dealing with the paperwork to obtain a 300,000-euro grant. He also hired a consultant to liaise with the government.

“If I had to start a company again I don’t know if I’d do it in Spain,” said Fernandez, who is waiting for the final government green light for the full grant to help pay the costs of his company’s newly built satellite. “For less effort and less bureaucracy you can get millions for tech in the US.”

PUTTING OUT FOREST FIRES

The application for seaplanes to combat forest fires was initially rejected by EU bureaucrats because the aircraft use polluting fossil fuels, even though the use of sustainable fuels isn’t yet widespread in aviation, a Spanish government official told Reuters.

The issue was eventually resolved after discussions between the Madrid government and Brussels, with Spain successfully persuading the Commission that the benefit of putting out fires outweighed their CO2 emissions, according to the official who declined to be named as the conversations were confidential.

Tractors for sustainable agriculture did not have the same luck, and their financing was blocked by Brussels, according to the official.

Celia Ferrero, secretary general of the ATA, said many had dropped out of applying for funds after being asked to show proof of a healthy balance sheet for up to the past five years, when many suffered losses during lockdowns.

The volume of work has risen fivefold and has taken its toll on public officials, according to two senior Spanish civil servants. Some high-ranking officials have quit to join the private sector, complaining of burnout, they said.

In February, the government paid 70 million euros to hire Tragsatec, a state-owned consultancy firm, as a reinforcement for regional governments.

($1 = 0.9147 euros)

(Reporting by Belen Carreño and Charlie Devereux; Additional reporting by Gavin Jones in Rome; Writing by Charlie Devereux; Editing by Pravin Char)

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