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THE EURO ZONE

Spending spree

This week saw some big numbers being thrown around by the Spanish government. Prime minister Pedro Sánchez announced that his leftist coalition plans public investment of €150 billion throughout 2021 and 2022, a level of spending that heavily depends on Spain receiving an EU bailout package of €140 billion, €74 billion of which would be in grants, the rest in repayable loans. This hefty injection of funds into the country's post-Covid economy, according to Sánchez's administration, could in turn act as a stimulus to private investment worth €500 billion.

You wouldn't necessarily guess, staring goggle-eyed at these enormous figures, that Spain is currently weathering a global health crisis with the potential to become, at least in its own case, an economic crisis too. But Sánchez maintains that increased public spending is the best way to bolster the country's fragile economy, which was still recovering from the global recession when the pandemic hit.

So, where's that €150 billion coming from and where will it go? This is the point at which the government's plans become hazy. Sánchez has promised to raise existing taxes and to create some new ones, measures that won't sit well with a population that's been so badly affected by the pandemic and resulting lockdown. But apart from that, there's little evidence that the potential sources of this miraculous amount have been carefully examined. One also wonders if the wildly ambitious figure of €500 billion, which seems to have been snatched out of thin air, takes into account investor caution in the post-Covid financial world.

The Socialist leader's proposed approach is not the only one available to governments faced with vulnerable or tanking economies. Mariano Rajoy's conservative Popular Party tackled the fallout from a burst property bubble in 2008 (a situation both similar to and importantly different from the Covid crisis) by slashing rather than increasing public spending. In many ways, that strategy was enforced by Brussels in exchange for a €40 billion aid package, which it provided to rescue Spain's stricken banking sector. Rajoy defended the deeply unpopular austerity measures by arguing that, although unpleasant, they were necessary in reducing the gap between the country's income and its public spending.

Where Sánchez's hypothetical €150 billion is directed will determine its economic impact and, in turn, the amount and type of private investment it stimulates. If I gave you €10,000 and asked you to refurbish my flat, I wouldn't be impressed if you spent it all on a new sofa - nor, presumably, would a potential buyer. Here, again, the government's plans are vague: some of the money will go to tourism, some to healthcare, some to unemployment benefits, but the details in each case are sparse. We're led to speculate, as we often are with Sánchez's government, how much substance and detail supports its attention-grabbing announcements.