Stagflation | Economy | THE COUNTRY

Three European flags fly in front of the European Union offices in Brussels, Belgium.
Three European flags fly in front of the European Union offices in Brussels, Belgium.Yves Herman (REUTERS)

Since the beginning of 2021, the world economy has registered different supply disturbances that lead to stagflation in a large part of the countries. Supply chain breakdown, gas crisis, food crisis, etc. The invasion of Ukraine has intensified all those trends, but the GDP of the Eurozone slowed down in the last quarter of 2021, and Germany and Austria have already registered falls.

The uncertainty about the duration of the war in Ukraine and its effects is maximum, but the most likely subsequent scenario is that of higher prices for energy and other raw materials. The European Commission, with good judgment, has forced countries to fill their strategic gas reserves before October. Therefore, demand pressure will keep prices high, at least until the spring of 2023.

We already experienced this situation in 1973 and especially in 1979. Expansionary fiscal and monetary policies create more inflation and increase unemployment. The greatest risk is the inertia of salaries, margins and prices that also end up increasing unemployment. Rent agreements are necessary to avoid it. But in 1977 the politicization of the Moncloa Pacts ruined the agreement between the bosses and the unions, which should be the ones to negotiate the agreement without political or media pressure.

The European summit in Versailles has had fine words but few concrete agreements. The Commission has proposed allowing regulated electricity prices for consumers and eliminating state aid to companies. This gives countries room to mitigate the effects of rising gas prices on inflation, GDP and employment. And there is still not enough consensus to change the pricing model of the wholesale markets.

The high prices of raw materials reflect scarcity and greater public intervention will be necessary to manage this situation. The key is that the intervention be intelligent and mitigate the effects of stagflation, but it should not be ruled out that the rulers bring out the Soviet planner that we all carry inside. In 1973 President Nixon applied Soviet planning with prices fixed by law and continued with Gerald Ford and his chiefs of staff Donald Rumsfeld and Dick Cheney. It was an absolute failure that dammed inflation and prolonged the crisis and unemployment.

Spain has the best gas infrastructure, the best sun conditions and good wind conditions, especially at sea, to reduce our dependency. And we can finance these investments with private money and European funds without putting more pressure on public debt.

He knows in depth all the sides of the coin.


The key is not to make short-term mistakes that can be very expensive in the long term, as happened with the sun tax of 2013. Or with the decree of last September, which today would have cost photovoltaic producers around 15,000 million and wind power, which would have stopped investments in their tracks and placed Spain as an insecure country to invest in.

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