The world’s economy is fast deteriorating due to the effects of the coronavirus pandemic, which calls for a swift reaction that prevents a financial breakdown of the private and public sectors. The economy, public health and communities in developing countries, where risks are extremely high, are being hit particularly hard. The only precedents of a similar economic collapse in wealthy countries are the Great Crash of 1929 and the 1936-39 civil war in Spain. The IMF has estimated that the debt-to-GDP ratio of wealthy nations will have climbed from 105% to 122% by the end of 2020. A ratio of this magnitude will require either broad pacts to manage the social emergency first and then promote economic recovery, or cutback policies that many societies will be unable to endure without giving rise of populism, an outbreak of public rage, or both: they feed off one another perfectly well. A case in point is Spain, whose public finances are still suffering today due to the country’s sovereign debt, the cost of public pensions and the need to meet the deficit target imposed by Europe. Yet clearly better public (or public-private) policies are needed to strengthen the national health and welfare systems.
Much is at stake for Europe and, once again, it is lagging behind. The relief package is substantial, but in its attempt to strike a balance on fiscal policy Europe doesn’t seem to realise that nowadays soaring public debt is less dangerous than the current level of restraint. Indeed, delaying the decision to pump cash into the system might carry dire consequences: joblessness for millions of people and many families on the breadline, amid an unprecedented public health crisis.
The Spanish government should keep the pressure to clinch a deal that does not penalise the countries in southern Europe, as if the coronavirus were the result of misguided or extravagant policies. There aren’t many choices available: Spain and —given the regional funding system currently in place— Catalonia both need immediate access to cash without taking on an unbearable burden, as the people would not be able to afford a tax hike. PM Pedro Sánchez and the opposition should work together to strike a deal whereby the pain caused by the debt is kept down to a bearable level in the hope that inflation and growth will reduce it in the future, even if such optimism is unfounded today.
Reconstruction requires a consensus and Catalonia has taken a step in the right direction. In Spain Pedro Sánchez’s standing has taken a blow due to the magnitude of the crisis as well as a merciless opposition. When the people ask themselves who is standing at the helm, it is embarrassingly petty that the answer should be a worn-out government whose opposition has no qualms about lashing out at those tasked with managing such a diabolical situation.
The coming weeks will show whether low-flying politicking gets the upper hand in Europe, Spain and Catalonia —all of which are in need of broad-based agreements that rethink the political models— or, instead, the greatness of Politics with a capital “p” prevails.
The measures that we need require broad agreements based on political and economic realism. Europe will not agree to boundless money printing and the ECB won’t be allowed to keep buying sovereign debt from member states to a tune higher than during the great recession of 2008. However, the EU will not survive without a stimulus plan because this time there are no workhorses to kick-start an economy that has been knocked out globally.
Catalonia has seen a new budget approved with a spending increase of €3.07bn (12.6 per cent up from 2017). This was a necessary step that will, nevertheless, fail to cover the bill of strengthening the national health system and welfare services, research, tourism and the primary sector. The various levels of the administration will need to work as one, heeding the messages from local governments, who can already see poverty knocking at their door. Speaking to this newspaper last Friday, several local community and third sector organisations, united in La Confederació, warned that their finances are severely strained, not only because of the surge in the number of people who require assistance, but because they were already in tatters before the COVID-19 pandemic broke out. Extreme poverty situations have been exacerbated by the pandemic and the lockdown, which has wiped out small businesses and the informal economy that existed in the catering, cleaning and construction industries.
On Saturday evening PM Sánchez spoke of a coordinated effort and “a control panel” shared by the administrations. He stated that the lockdown restrictions will be lifted unevenly across Spain, under Madrid’s coordination. Sánchez would be advised to take a crash course in federalism, a class whose demands are as great as those placed on the general public, besieged by the virus and the downturn. Otherwise Spain’s prime minister will find himself at the mercy of the Spanish right, whose only intention is to devour him as soon as possible.