When Spain moved from Franco’s dictatorship to democracy and the Moncloa Pacts were signed, there was a constant that galloped like the four horsemen of the apocalypse: inflation. Figures of up to 30% martyred the rulers, while the workers demanded the adjustment of wages. Time passed and things were arranged, more so when Spain entered the European Union (then EEC) and when it undertook to lower prices to 2% according to the Maastricht treaty to adopt the single currency. Now that ghost has returned, which does not only affect Spain. It is a problem that has been unleashed with the force of gravity throughout Europe after the Russian invasion of Ukraine and the energy crisis. The issue is tricky, as was revealed in the traditional course on economics organized at the Menéndez Pelayo International University (UIMP) in Santander by the Association of Economic Information Journalists (APIE) under the sponsorship of BBVA.
Russia and Ukraine are among the main producers of certain energy and non-energy raw materials, and Europe is highly dependent on imports of some of these products (Russia accounted for around 20% and 35% of oil and gas imports of the euro area in 2020, which in Spain does not reach 6%). Direct commercial exposure is moderate (more modest in Spain); but indirect effects can be high, particularly in the context of sanctions. Financial dependence, for its part, is very low; but there is an increase in volatility and an increase in the tension of financing conditions.
In this context, households and companies will experience difficulties in anticipating future economic developments, particularly on their income, which will weigh on their consumption and investment decisions, according to the Governor of the Bank of Spain, Pablo Hernandez de Kos. The situation has produced a deterioration in confidence indicators, according to the supervisor, which in less than half a year has changed its forecasts as the conflict drags on. It has gone from 5.4% GDP growth in 2022 that was predicted in December 2021 to 4.1% this June and from an increase in the CPI (Consumer Price Index) from 3.7% to 7, 2% in the same period.
For the Spanish banking sector, the governor foresees that it would maintain adequate resistance capacity in the face of the extreme macrofinancial risks identified. However, he calls for prudent behavior from the sector and raises the need to address the structural challenges that already existed, in particular, the adjustment of capacity and the growing competition from technology companies, as well as the negative effects of climate risks.
The figures and changes in forecasts bring bitterness down the street to the Government, which does not stop shuffling and devising formulas to deal with the situation. “We have to find the instrument, the most appropriate fiscal, financial and legal vehicle to fairly distribute the negative impact of this crisis,” said the first vice president of the Government on Wednesday, Nadia Calvino, in the round of questions that he attended electronically after not having been able to hold the press conference scheduled at the opening of the course. Calviño recognized that the Executive is working with a new scenario of higher inflation and for a longer time.
The Vice President of the ECB also participated by videoconference on Wednesday, Luis de Guindos, who dismissed any positive expectations. Price rises in the euro zone will remain above 8% at least until the fall, he said from Frankfurt. “If we do run into second-round effects, this will lead to inflation being more extensive and affecting more components of the CPI and the monetary policy response being different,” he added.
This situation puts pressure on the ECB to undertake an interest rate hike of 0.25 points next month and another (it could be 0.50) in September. From there, “we will look at the real evolution of inflation, our projections and we will act accordingly,” said the vice president of the Eurobank. “We don’t know where the guys can go, it will depend on the data,” he warned. In short, there is no planned ceiling, which depends on the evolution while the effervescence between hawks Y pigeons on the number in which the neutral rate will be located, that is, the one that does not expand the economy, but does not contract it either.
Guindos also spoke of the program to avoid the fragmentation of the debt of the community countries and underlined that it should not interfere in the normalization of monetary policy or in the fight against inflation. In that sense, he considers that it will serve to broaden the bank’s options: “Having an anti-fragmentation instrument is freeing up monetary policy to be able to act more forcefully against inflation.”
From a different perspective, the unions demand, in addition to promoting industrial policy, the salary revaluation for what they propose to the CEOE employers to return to the negotiating table. The point of disagreement is in the salary guarantee clause, which for the organization chaired by Antonio Garamendi would mean making high inflation chronic. In summary, the conflict is served, as recognized by the general secretaries of the UGT and CC OO, Pepe Alvarez Y Unai Deaf.
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