One of the most unexpected results of this crisis is the paradigm shift in European economic policy. Faced with the dogma of a return to budgetary balance in 2011-12, without regard for the economic or social consequences, on this occasion Brussels has opted for intelligent support for the situation. Fiscal rules would have corseted the response to the pandemic, hence the decision to put them on hold.
The ECB, for its part, has played a crucial role in facilitating the purchase of public debt in exceptionally favorable conditions. Since the beginning of the pandemic, the state debt has increased by 170,000 million euros (almost 3,600 euros per person), and practically all this new liability is on the balance sheet of the central bank. A very different policy from the financial restriction and the increase in interest rates of the Trichet era. The result is a lower cost of State financing and a providential reduction in the risk premium.
alignment of the fiscal and monetary planets is still necessary : the internal situation seems to be suffering a new attack of weakness, the result of bottlenecks, the decrease in purchasing power produced by the inflation of energy prices and now omicron. The industrial production index chains five months of falls and the prospects for tourism recovery are clouded by the restrictions that extend throughout Europe.
Although the administrations seem to be accelerating the execution From the European funds (especially with the recent approval of the electric vehicle plan), the push comes late in relation to the cooling underway. It is likely, therefore, that Spain will not reach the levels of pre-pandemic activity until the end of 2022 or the beginning of the following year.
Can we continue to count on such a benevolent European economic policy? Partly yes, but important changes are in the offing that should be prepared for.
On the friendly side, the strongest argument comes from Draghi. The Italian Prime Minister has accustomed us to expressing himself with parsimony, and when he does so it sounds like the call of an oracle: “The reform of fiscal rules is inevitable.” And it is, first of all, because the EU has to face a more complicated energy transition than anticipated, and therefore requires a huge volume of investments to change the energy model. This is not possible within the framework of the consolidation path established in the last century.
The next German government has understood this, and may be willing to accept that green investment is not accounted for for the purpose of public deficit targets. Secondly, France and Italy share a deteriorating budgetary and debt situation with our country
– the consequence of the recent boost to public investment is higher growth than ours, for now -. An abrupt turn of the screw starting in 2023, which is when fiscal rules will hypothetically be reactivated, would cause an earthquake with unpredictable consequences. For the same reasons, the ECB can only normalize its monetary policy gradually, failing to tighten risk premiums.
However, the planets have their dark side: everything points to the fact that, the new paradigm necessarily incorporates conditions. The “frugal” countries have not renounced the manual, and will demand a correction of budgetary imbalances in exchange for an eventual relaxation of the rules that apply to investment. And the ECB's pandemic debt purchase could come to an end as of the spring, in the face of more persistent inflation than anticipated, which will prompt us to turn more to the markets. Therefore, Spanish economic policy has a limited time to underpin the expansion, promoting investment and the implementation of the recovery plan. When the stars rotate, the scope for action will inevitably narrow.
The industrial production index decreased 0.4% in October, and more than 3% since may. According to qualitative surveys, lack of supplies is the main cause. Bottlenecks are preventing a bulky order book from being carried out. The fall in the production of capital goods stands out, in line with the cooling of investment and the delay in the execution of European funds. According to the IGAE, the total expenditure until October on account of the funds amounts to just over 6,000 million.
Raymond Torres is Funcas' joint venture director. On Twitter: @RaymondTorres _
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