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The imperative of fiscal consolidation: Free or forced

The Bank of Spain, Airef, the European Commission, the OECD, the IMF and all public and private research institutions that have referred to the economic situation of our country in the last year have pointed out the need to negotiate fiscal consolidationto convey to private investors the knowledge that our national debt can be trusted and as a tool against inflation.

Never the less, The government has stubbornly believed that in order to direct the Spanish government account, it is enough for European governments to continue with the monetary policy that floods the market with liquidity. decade and the fiscal policy that halted the guiding principles of the Stability Pact and increases spending through debt-financed Next Generation Funds. To support their inaction, they use recent data on unemployment, debt-to-GDP and development tax collection.

In this sense, when they refer to the positive development of unemployment data, they hide the fact that it is largely the result of consider employees for statistical purposes a who are truly unemployed and an increase in public employment, without ceasing to be the country with the highest number of unemployed in Europe. On the other hand, in terms of time, what is certain is a change in the name of the contracts and not the end of dualism in the labor market.

Second, when they refer to the debt, they tend to emphasize its reduction, because they estimate it as GDP, and avoid talking about its increase in quantity. So highlighting that it has gone from 125.2% in the first quarter of 2021 to 117.7% of GDP in the first quarter of 2022 does not prevent us from seeing that Spanish debt reaches 1,453,853 million euros, of which 398,000 million with the ECB, more than a third of which is abroad, which reaches 75% of the total if we add 501,620 million euros acquired by funds, insurers and foreign banks.

Thirdly, they refer to tax collection data which shows an increasing trend. In fact, 2021 ended with 15% more than 2020, up to 223,385 million euros and in the first four months of 2022 it has grown by 18% compared to the same period the previous year, 85,922 million compared to 72,778 million. This development does not hide from the eyes of investors a quantitative and qualitative aspect that worries all experts, but it does not seem to concern the political leaders of the Ministry of Finance. The first thing is that The Spanish government spent 82,819 million euros more than it received in 2021 and that the structural deficit is heading for 4% of GDP. The second is that the increase in tax collection primarily originates from the fact that inflation is in its favor, although it simultaneously reduces the disposable income of families and the competitiveness of our companies, that is, it affects private consumption and investments, reducing economic growth.

The fragility of the Spanish economy is so evident that it was enough for the ECB, faced with uncontrolled inflation, to be forced to change its monetary policy, disable the debt purchases that began during the pandemic and implement interest rate hike of interest rates in July, so the Spanish risk premium fell from 118 to 140 and the yield on the Spanish 10-year bond rose to 3%. This caused the governor of the Central Bank to introduce new tools to ease capital costs and prevent a debt crisis like the one that happened a few years ago.

It is indeed enough for us to look back in economic history, that it is difficult not to find a time when the financing of spending plans and debt by printing notes longer than they should not end in inflation, because for example Milton Friedman taught us that inflation is always a monetary phenomenon. It is also true that the governments of countries in the South, we pray for the expansionary policy that was behind Draghi whatever it takes during the financial crisis and that in the market paralysis caused by the pandemic, all members of the Eurozone requested the same policy. But our responsibility lies in knowing what we can do, what we should do, for how long and saying it.

For us, a field opens up where restrictive monetary policy aimed at curbing inflation will inevitably lead to slower growth, the main thing is that it doesn’t paralyze you or set you back. The Spanish authorities should not continue to use the expansionary fiscal policy based on the price level, deficit and debt we have referred to above, because We have a duty to formulate policies that, unlike the current one, avoid harming the competitiveness of our businesses and the well-being of the most vulnerable families. Monetary policy eludes us, but fiscal consolidation, which can be used to reduce spending, does not, which does not prevent us from focusing on those most struggling and structural reforms. Finding this balance is what we should strive for.

However, the government sees on the horizon restrictions on spending related to the new European instrument and which Lagarde described at the central bank meeting held in Sintra, saying that it would have sufficient protection for the countries to formulate a solid economic policy, but this does not seem to worry the current political leaders , because to pass it is not necessary to combine public accounts, it is enough that they found Europe guilty.


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