The outbreak of the epidemic from Spring 2020 had a massive impact on the Spanish economy, due to the weight of the most affected sectors – especially tourism – and measures to contain the virus. The government immediately, like other European CEOs, responded with measures to support workers and companies – ERTEs and Liquidity Lines. Brussels has suspended financial rules and the European Central Bank (ECB) has approved a multi-million dollar asset purchase plan. America went further with Joe Biden at its head. Multilateral organizations stress again and again that Europe should learn from the Great Recession and not be tempted to withdraw stimulus prematurely. This discussion was due to start in the spring of next year, but it is already on the table: many countries are calling for the European Central Bank to move away from gas – still with a small mouth – and Germany, the main sponsor of austerity during the past crisis, is starting to show its tentacles also on the financial level. . And with Spain.
Last Monday, March 1, the next report on the Spanish economy, which will be presented in the coming days, was discussed in the Organization for Economic Cooperation and Development – the organization that brings together the most industrialized economies in the world. Spain presented in the macroeconomic picture document – despite the fact that growth estimates have recently dropped to 6.5% this year – the main lines of the recovery plan and the usual list of reforms. Germany and Greece were the main evaluators and offered alternative perspectives. Berlin made a succulent report, which EL PAÍS had access to, as the German position was clear: lower public income and incentives would stabilize public debt at around 120% of GDP in the near future; This is very likely to leave very low fiscal space in the coming years, and therefore for the coming crisis, even more so if interest rates end up rising, as the Bundesbank has begun to propose in Frankfurt.
In this context, Berlin sees the “clear” need to change course in the near future. It supports the launch of a multi-year adjustment plan – like the Bank of Spain on the other hand – and is the moment at which the plan is announced “secondary”. The crucial thing is to make an “ambitious and reliable” commitment to reducing public debt as a signal to the markets.
But that’s when it’s totally basic. The International Monetary Fund believes that the time has come to apply more stimulus to the economies. The European Commission has released repeated messages along the same lines, and even the European Central Bank is calling for more financial activity, especially while the lean cows continue: the first quarter was very weak in Europe, and the recovery has been delayed by vaccine problems due to the successive waves of the virus and delayed Implementation of the recovery fund. Overlooked in this context, Berlin is giving the first hints of what is to come in this tax debate. His conclusion is clear: “Depending on the evolution of the epidemic, fiscal consolidation must begin sooner rather than later.” In addition, the German position warns of increased spending on pensions and their impact on public finances.
Beyond that document, the German delegation was very difficult at that meeting. It found support in the Czech Republic, according to the sources consulted. But Brussels has argued that this is not the time for adjustments. The US delegation went further and indicated that it is not “rational” for the economist to propose fiscal consolidation now, when half of the Eurozone is on its way or is plunging into a second recession and the recovery will arrive later than expected.
This debate reminds us of the subsequent debate Collide From Lehman Brothers. In the middle of the Great Recession everyone subscribed to some kind of Keynesian juggernaut in 2008. But Europe turned in 2010, with tough German positions in the picture and the European Commission of Jose Manuel Barroso in its wake. Berlin, Brussels and Frankfurt, with the European Central Bank very active in favor of the adjustment pills, sparked a series of bailouts, including Spanish banks, leaving the euro on the brink of collapse on several occasions, until Mario Draghi arrived at Europanco. Jean Pisani-Ferry, a former adviser to Emmanuel Macron, said that managing the eurozone in those years of austerity overdose “is without doubt one of the biggest economic policy mistakes ever made.”
It is too early to say that the upcoming German elections may change Berlin’s stance, but the debate over austerity will return sooner or later. Even the most Orthodox German economists do not understand well the claim to adapt sooner rather than later in an economy hit by COVID like Spain: “If that were the case, it would be a widespread political and economic mistake,” says Jacob Kierkegaard of the Peterson Institute. “It is completely premature for Germany to press for amendments, it has no reason at this time. It would be much better to pressure Spain to present a recovery plan with strong reforms, and Germany itself should try to present a good plan that serves as an example of how European money can be spent properly. Correct, “according to Kierkegaard.
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, threatening to further delay payments. Berlin is beginning to show its tentacles on the financial level: Finance Minister, Social Democrat Olaf Schultz, opposes reform of the stability and growth plan, which imposes cuts in times of crisis, and according to experts, it was made completely outdated. The German executive in the Organization for Economic Cooperation and Development has shown that it will fight again on this wing. So far, to no avail: The final report, according to the sources consulted, includes a consensual view and shows Berlin’s position is extremely watered down. Finally, the OECD also wants to consider fiscal consolidation plans over the medium term. But not now, but when the recovery is on the right track.