There is a lot of uncertainty about what may come after the summer, although there should not be about the direction of current economic policy. The mistakes of the past cannot be repeated by placing the adjustment on the most vulnerable, propitiating a social implosion. It is to be celebrated that measures are being taken to protect citizens. The measures aimed at mitigating or compensating for the effects of inflation on citizens are different from those aimed at reducing inflation. Moreover, certain proposals to offset the effects of inflation on the purchasing power of wages, such as lowering taxes, may be inflationary and end up reinforcing the monetary hack that will come sooner or later, even though the main causes of inflation are external. : global supply restrictions and rises in the prices of raw materials and energy. The priority today is to maintain macroeconomic balances to guarantee economic growth and control debt, and to be able to face new external shocks and rate hikes, and avoid or minimize painful fiscal adjustments in the medium term. What is fiscally prudent today is to take advantage of inflation to increase income and control the public deficit.
In any case, after the summer, difficult economic policy decisions will have to be made to deal with the coming energy shock, all the more severe where dependence on Russian gas is greater, without repeating mistakes that mortgage the future or that contribute to generating unsustainable recoveries. .
Before the invasion of Ukraine, the decoupling of the Spanish economy with respect to the European economy was perceptible, translated into lower growth as a result of previous errors limiting our response capacity. The economic policy applied 10 years ago explains our current weaknesses.
The real estate bubble of 1993-2008 hampered investment in other types of capital -industrial, technological and human, R+D+i-. The bursting of the bubble and the collapse of a financial system fed up with land and failed promotions multiplied the Spanish public debt because we citizens rescued these entities to avoid greater evils. That debt dragged on since then is the main cause of our less fiscal margin to resist the onslaught of the pandemic, first, and that of the invasion of Ukraine later, aggravated by the shortage crisis and the “bottlenecks” in the supply chain. global supplies. That debt is today our main vulnerability.
However, the public response, radically opposed to that after the bankruptcy of Lehman Brothers has made it possible to respond in solidarity and forcefully –NextGenerationEU, ICOs, ERTEs– although neither the capacity of the companies to absorb these funds in a context of declining expectations, nor some jibarized public administrations, on the verge of collapse and overwhelmed by demanding bureaucratic procedures to avoid past errors -corruption- have allowed it to unfold its full potential.
Well, there is no alternative, and that window of opportunity for investment and structural transformation in a European dimension of strategic, industrial and technological autonomy is the only way we can face what is coming. Without a doubt, spending priorities will have to be redefined, European funds redirected and even new instruments created, and the energy transition accelerated.
how? Strengthening public-private cooperation by learning from mistakes, modernizing our administration and assuming that only with effective and well-endowed public policies is it possible to guarantee good opportunities for everyone, face unexpected crises or external shocks such as the pandemic or Russian aggression, and improve social cohesion.
The unresolved consequences of the financial crisis in combination with what has happened since 2020 make the current social risks considerable – inequality, wage incomes threatened by inflation, access to housing, exhausted public health, populist experiments in education that socially segregate , etc….-. What Spanish public policies need is certainty and a guarantee of solvency, and not proposals encouraged by the populist howls of the moment that condition economic recovery, equal opportunities, social cohesion, and ultimately present and future common well-being.
That is why it would be nonsense to reduce investment again, weaken our fiscal response capacity and encourage ineffective public policies or even attack European funds and an effective economic policy scheme in Spain while supporting them in Brussels. These policies not only have not saved from covid, but they are the ones that contribute the most to reinforcing the proper functioning of the markets and the private sector.
Juan Moscoso del Prado is EsadeGeo Non-Resident Senior Fellow (Esade)
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