The outbreak of the pandemic from the spring of 2020 had a formidable impact on the Spanish economy, due to the weight of the most affected sectors – especially tourism – and the measures to contain the virus. The Government reacted immediately, like the rest of European executives, with measures to support workers and companies – ERTEs and liquidity lines. Brussels suspended fiscal rules and the European Central Bank (ECB) approved a multi-million dollar asset purchase plan. America has gone even further with Joe Biden at the helm. And multilateral bodies repeatedly stress that Europe should learn from the Great Recession and not be tempted to withdraw stimulus prematurely. That debate was scheduled to begin in the spring of next year, but it is already on the table: several countries are calling on the ECB to take its foot off the gas – still with a small mouth – and Germany, the main sponsor of austerity during the past crisis has begun to show its claws also on the fiscal plane. And with Spain.
Last Monday, March 1, the next report on the Spanish economy, which will be presented in the next few days, was discussed at the OECD – the organization that groups together the world’s most industrialized economies. Spain presented in a document the macroeconomic picture – despite the fact that growth estimates have recently been lowered to 6.5% this year -, the main lines of the recovery plan and the list of usual reforms. Germany and Greece were the two main evaluators and presented alternative views. Berlin presented a succulent report, to which EL PAÍS has had access, in which the German position is clear: the fall in public income and stimuli will stabilize public debt at around 120% of GDP in the near future; This is very likely to leave a very reduced fiscal space in the coming years and, therefore, for the next crisis, even more so if interest rates end up rising, as the Bundesbank begins to suggest in Frankfurt.
In this context, Berlin sees “obvious” the need for a change of course in the near future. It supports launching a multi-year adjustment plan – like the Bank of Spain, on the other hand – and considers the moment in which the plan is announced “secondary”. The crucial thing is to present an “ambitious and credible” commitment to reduce public debt as a signal to the markets.
But that when is absolutely fundamental. The International Monetary Fund (IMF) believes that it is time to apply even more stimulus to economies. The European Commission has launched repeated messages along the same lines, and even the ECB calls for greater fiscal activism, even more so while the lean cows last: the first quarter has been very weak in Europe, and the recovery has been delayed by problems with the vaccines, by the successive waves of the virus and by the delay in the implementation of the recovery fund. Oblivious to this context, Berlin gives the first signs of what lies ahead in this tax debate. And his conclusion is clear: “Depending on the evolution of the pandemic, the fiscal consolidation process should start sooner rather than later.” In addition, the German position warns about the increase in pension spending and its effects on public finances.
Beyond that document, the German delegation was very tough at that meeting. And it found support in the Czech Republic, according to the sources consulted. But Brussels defended that this is not the time for adjustments. And the delegation of the United States went even further and pointed out that it does not make “any economic sense” to propose fiscal consolidation now, when half the eurozone is on its way or is immersed in a second recession and the recovery will arrive later than expected.
This debate is reminiscent of the one after crash from Lehman Brothers. In the middle of the Great Recession, everyone signed up for a kind of jug Keynesianism in 2008. But Europe turned in 2010, with the tough German positions in the figurehead and the European Commission of José Manuel Barroso in its wake. Berlin, Brussels and Frankfurt, with a very active ECB in favor of the adjustment pill, provoked a succession of bailouts, including that of Spanish banks, and left the euro on the brink of collapse on several occasions, until the arrival of Mario Draghi to Eurobanco. The management of the eurozone in those years of austerity overdose “is undoubtedly one of the biggest economic policy mistakes ever made,” said Jean Pisani-Ferry, former adviser to Emmanuel Macron.
It is too early to tell because the upcoming German elections may change Berlin’s position, but the austerity debate will return sooner or later. And not even the most orthodox German economists understand very well the claim to adjust sooner rather than later in an economy as hit by COVID as Spain: “If that is the case, it would be a broad political and economic error,” says Jakob Kirkegaard, from the Peterson Institute. “It is absolutely premature for Germany to push for adjustments, it just has no reason to be at this time. It would be much better to press for Spain to present a recovery plan with powerful reforms, and for Germany itself to try to present a good plan that serves as an example of how to properly spend European funds ”, according to Kirkegaard.
The Germans have already given several signals that they want to see changes in the ECB’s monetary policy. The German Constitutional Court halted the recovery plan at the end of March, which threatens to further delay disbursements. And Berlin is beginning to show its claws on the fiscal plane: the Finance Minister, the Social Democrat Olaf Scholz, is against the reform of the Stability and Growth Plan, which forces cuts in times of crisis and, according to experts, has made completely obsolete. The German Executive has shown in the OECD that it is going to fight again on that flank. At the moment, without success: the final report, according to the sources consulted, includes the consensus vision and in it the position of Berlin comes out very, very watered down. Finally, the OECD also wants fiscal consolidation plans thinking in the medium term. But not now, but when the recovery is solidly on track.
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