THE EURO ZONE
Socialist prime minister Pedro Sánchez wants everyone to love his government, to see it as a modern, huggy coalition as unlike the austere, corrupt old Conservatives as possible. This is why he's trying so hard to avoid using the word "austerity", a term carrying connotations of punitive economics and often associated with his arch-enemy Mariano Rajoy, whose right-wing administration implemented austerity measures to help Spain recover from recession ten years ago.
The country's leading fiscal authorities seem similarly unwilling to use this dreaded term. In the Bank of Spain's latest address on Covid this week, the dirty word wasn't employed directly, but it was lurking just behind those that were. The Bank recommended the adoption of a medium-term fiscal plan to save jobs and businesses, and to deal with a debt level that will be the "highest in many decades". This was interpreted as follows by the Spanish daily El País: "Despite the cautious tones, the message remains clear: there will be no repeat adoption of the strict austerity measures introduced a decade ago during the economic crisis".
Yet it's not at all clear that there's any meaningful difference between what the Bank says will be necessary to contain Covid's economic fallout and the unpopular measures enacted by Rajoy a decade ago. The Bank predicts that "deep budgetary reforms" will be required to control Spain's already-swollen public debt and to "prevent enormous social and economic costs". It has stated before that tax hikes and spending cuts will need to be among these "deep budgetary reforms". Is this not austerity in all but name?
It's looking likely that austerity economics of some kind will play a part in the post-Covid recovery. Let's remind ourselves of the latest statistics: it emerged this week that during the first quarter of 2020, Spain's GDP contracted by 5.2%, more than double the amount it shrank in the first quarter of 2009, at the beginning of the global recession. The first quarter of this year encompassed only two weeks of the total lockdown that dominated over half of Q2, during which period the Bank estimates that the Spanish economy slowed by an incredible 20%. There were zero international visitors to Spain in April: not a single, solitary tourist in a month that usually marks the start of the summer season. And to top it all off, the country's public debt is expected to rise to around 120% of GDP this year, up from an already-dangerous level of just under 100%.
Sánchez and the fiscal authorities can avoid the term "austerity" as much as they like, but it's hard to see how the government will be able to honour its costly welfare pledges at the same time as minimising Covid's economic impact.