Victoria Carvajal

Pandemic Today, Ruin Tomorrow

«The feared relapse of economic activity is already a reality, with all its terrible consequences for the business and social fabric and its negative impact on national debt»

Opinión Actualizado:

Pandemic Today, Ruin Tomorrow
Foto: Francisco Seco| AP
Victoria Carvajal

Victoria Carvajal

Economista empeñada en hacer comprensible y hasta entretenida la información económica. Madre feliz y actriz en sus ratos libres.

Stronger? Ha! Quite the opposite. The uncontrolled spread of COVID-19 in Spain once again puts everyone’s health at risk and makes it inevitable that imminent lockdowns like the one in  Madrid are extended to other territories. The feared relapse of economic activity is already a reality, with all its terrible consequences for the business and social fabric and its negative impact on national debt. Everything suggests that we are drawing inexorably closer to the most pessimistic scenario: a fall in the GNP of nearly 13% in 2020 as the worst outcome foreseen by the Bank of Spain  and anticipated by the IMF.

The reasons for this? Unlike Italy, a country that has suffered the consequences of the pandemic as much as Spain, in this second wave of contagion government has been incapable of establishing the mechanisms for detection and tracing that are key to consolidating the improvement that the Spanish economy has experienced from July to mid-August. Just as the euro crisis exposed the shortcomings in the architecture that ought to shore up the common currency, the structure of the State of autonomous communities —, a quasi federal State, without really being one —, has proven to be ineffective to fight against such a great health challenge, for lack of the necessary mechanisms of solidarity and coordination.

But instead of closing ranks at a time of national emergency and seeking the broadest consensus possible, the Government prefers to open new fronts to deepen the division in society: in less than one week it has defied the authority of the King, delegitimized the action of the judges and provoked half of the Parliamentary hemicircle with its untoward urgency in filing for pardons for the Independence leaders of Catalonia. The leaders left more than half of the Catalans without legal protection under the law when on the 6th and 7th of September 2017 they overrode  the Constitution and the Catalan Statute and issued a formal call for a referendum on October 1st. Sánchez’s government seems to be ready to torpedo the constitutionalist consensus in exchange for a handful of votes that will allow him to move ahead with his budget and secure the legislature.  Even though he knows that the text, no matter how many concessions he makes to his partners, may not be worth the paper it is printed on,  without the OK of the European Commission.

And while we are all scandalized (or distracted) by the arrogance shown institutions by the PSOE-UP government, economic data accumulate that point to disaster. Almost half a million jobs have been lost, of which 350,000 have avoided being laid off thanks to the ERTE (Expediente de Regulación Temporal de Empleo [Temporary Regulation of Employment Action]). This provision under the law, whose extension was negotiated a few days ago, together with a dispensation from the payment of Social Security, the deferral of tax payments by the self-employed or the legal decree in May which permitted businesses on the verge of failure to avoid filing for bankruptcy, today keep the Spanish economy alive on a respirator. The big question is, For how long? Up to September  the State has disbursed 22 billion (22,000 million) euros to finance the ERTE (almost 2% of its GNP). The Government anticipates that the expansion of the measures until January will cost taxpayers 1billion (1000 million) euros more per month. The EU had budgeted assistance in the sum of 21.3 billion (21,300 million) for this. The difference will pad the bill of national debt. And so it goes.

The fact is that many of these measures also come with an expiration date: the ERTE are only good until January 2021. This means that employers will resume the payment of salaries to their employees without the possibility of rescinding their contracts even if the situation is adverse to them; if they fire workers they will have to return the sums given them by the ERTE and assume besides payment in indemnification. All of this makes it more likely that, in the absence of an extension of aid, many of them, if unable to assume that outlay, will opt to close down and dismiss all of their employees without the possibility of adjusting the size of their staff.

In the case of the legal decree that helped to put off filing for bankruptcy (a suspension of payment that could end up in a firm’s closure), this decree ceases to be applicable in December 2020. When this occurs there will probably be an avalanche of demands for the liquidation of assets. Besides spelling the collapse of the courts, this process will probably lead to the closure of thousands of business that have so far avoided closing their doors, after the disappearance of 133,000 firms registered between March and May of this year. That is the reason for the decree. And, to put the figures for business mortality into perspective: in the nearly five years of the recent financial crisis, between 2008-2013, 300,000 businesses disappeared. The fact is, even if the bleeding is stanched, the colossal sacrifice which has occurred in record time in the three months of lockdown this year has reduced the number of employers in Spain to 2001 levels, two decades’ worth of regression. No big deal.

Another worrying chapter is the evolution of public debt. There are study centres that already put it at 110% of the GNP and they do not rule out its being nearer to 120% by the close of the year if national wealth continues to decline. The increase in social spending and other aid to business have forced the Government to increase its issuance of debt securities by 100 billion  (100, 000 million) euros in 2020 (8% of the GNP), an increase which future generations will be obliged to pay.

The only hope is that when these temporary measures of assisted breathing expire, having been used advantageously to control the pandemic and to avoid a new relapse, Spain will be ready to begin to receive part of the 140 billion (140, 000 million) euros that we have been assigned in the distribution of European bailout funds, an unprecedented agreement in the history of the Union. In the absence of the necessary consensus on reform and plans for investment which our country is to put forward, there emerges a not very promising piece of data on the capacity of the State to manage European aid: Spain has only used 34% of what it was assigned from Cohesion Funds in the period spanning 2014 to 2020. Even in this year of tremendous need. It doesn´t appear that our different administrations are up to the enormous challenge.

The pity is that if it is not prepared Spain will waste an historic occasion to modernize and transform its economy. If only out of solidarity with other member countries who are in fiscal straits, the Government has the responsibility to win credibility in the eyes of the EU members who are most sceptical, the «frugal», who are also the creditors; for this will permit an exceptional agreement to become the pillar of a future fiscal unión and establish a permament mechanism for common finance that will serve as a fiscal stimulus and complement monetary policy, In light of the bad management of waves 1 and 2 of the pandemic, nothing in our corner suggests that we will know how to take advantage of the opportunity we are being offered.

And to close, one indicator of the citizens’ scant confidence in the capacity of the Government to straighten the economic situation out is the marked increase in savings, which has grown by 31% up until September. Spaniards, even when in financial straits, prefer to save and not to spend for fear of what is coming next. Only time will tell if they were right to be so cautious, Pandemic today, ruin tomorrow?

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