War will make us poorer. There is more to follow the evolution of fuel prices this week at service stations. Diesel and gasoline increased by more than 10 percent and up to a third in the year. A ridiculous percentage if we compare it with raw materials, especially those exported by Russia or Ukraine: nickel, palladium, aluminium, steel and cereals such as wheat or corn.
All large industries dependent on energy consumption (steel, steel or cement factories) they started closing this weekto from one end to the other of the Peninsula.
One similar blow will suffer food companieswho strive to replace cereals with other raw materials to avoid stopping manufacturing them. Rises in raw materials will put small firms in difficulty, in a country where industrial activity now only represents 12 percent of GDP. Thousands of industrial workers with stable employment will enter Ertes or join the ranks of the unemployed.
The economic shock is huge. The forecasts of the Government of 7 percent growth for this year remains on paper. Nobody dares today in official instances to give a precise figure, especially if the war drags on.
With this scenario, economists are starting to cut their growth forecasts by a point and a half or two, to around 4 percent, while raising inflation to an average of between 6 and 7.5 percent. The most pessimistic are already talking about a recession this year.
Everything It will depend on the duration of the war. Inflation will remain high all year, because gas will not go down. European reserves are at an average of 27 percent, which will force a supply of this raw material for next winter.
In this aspect, Spain will play a key role in the medium and long term because It has a third of the European regasification plants. The crisis forces Europe to adopt for the first time a self-sufficiency strategy in both energy and defensive matters.
The energy rearmament would go through rebuilding the Midcat, to carry the Algerian gas through the Pyrenees to the center of Europe. Sánchez promised the president of the European Commission, Úrsula von der Leyen, to support this project, despite the fierce resistance of the third vice president, Teresa Ribera, contrary to gas and nuclear.
France will build more nuclear reactors while Germany is considering extending the life of two that should be turned off at the end of the year and reviving another that had just stopped working in the State of Bavaria, after approving the start-up of two regasification plants.
These fledgling projects, as well as the European declaration that gas and nuclear are clean energies they deeply irritate the third vice president, because they are a low blow to the ecological transition. Europe will have to review its ambitious plan to cut carbon emissions by 55 percent by 2030.
The problem is that none of the existing initiatives make it possible to solve gas self-sufficiency European short term. The worst is not Germany, countries like Latvia or the Czech Republic depend one hundred percent on Russian gas.
Something similar happens with oil.. Russia is the world’s third largest producer with 10.5 million barrels/day. The negotiations of the United States with Venezuela or Iran can serve to substitute a part of that production. Tehran, which before the embargo produced 4.5 million barrels a day, could extract an additional million in a few months, while Venezuela’s output, at just 700,000 barrels today, would double. Even so, reopening wells or facilities that have been closed for some time it is not achieved overnight.
The greatest hopes are pinned on Saudi Arabia, which has the possibility of going from around 10.5 to 13 million barrels/day and, above all, in the United Arab Emirates, which has already expressed its willingness to pump more crude.
The raw materials suffer a similar fate. Brussels would have to modify the CAP to make it easier for fallow land to be used for cereals, but it is a complicated procedure. The alternative, reopening the import of Argentine cereals, is not possible in the short term.
There are irreplaceable raw materials such as aluminum or steel. Against this background, what can EU member countries do to fight inflation in the meantime?
The Spanish Government has already launched a plan to reduce totally insufficient electricity taxes and now he wants to reinforce it with more measures, which would have a significant impact. One would be to subsidize the purchase of gas by issuing Eurobonds, as they have done with the Next Generation program to combat the effects of the pandemic. The other, much more effective, delink gas prices from the wholesale rate. This is one of the claims demanded by the first and third vice presidents, Nadia Calviño and Teresa Ribera, respectively, which is finally being heard in Brussels.
Government will intervene temporarily in the coming days the prices of electricityso that renewable, nuclear or hydraulic energies have a cap of around 60 euros per MW, which would probably lower the average cost of electricity from more than 400 euros per MW to around one hundred euros, according to analysts. This is the only measure that can relieve our pocketsbecause gas, oil and the rest of the premium materials will continue to rise even if the war ends.
Runaway inflation acts as a double-edged sword for the government. On the one hand, you will earn much more from special taxes on fuel, as well as from VAT. In contrast, the public spending will skyrocket due to the imprudence of the Minister of Social Security, José Luis Escrivá, and the social agents of vinculate salaries and pensions to the evolution of inflation.
The PP spokeswoman in Congress, Cuca Gamarra, charged this Wednesday against Sánchez for using the war as an excuse to justify the exorbitant prices. And in part he is right, inflation was already very high long before Putin set foot in Ukraine.
no one expected that the rises were temporaryexcept the Executive, which against all odds maintains an inflation forecast of 2.7 percent and growth of 7 percent to balance public accounts.
The paper holds everything. The barrel of oil is foreseen in the Budgets to reach an average of 60 dollars a barrel, exactly half of its real price. An impossible cost to reach, which will upset the external balance.
The worst is the public deficit. Sánchez summoned the social agents to Moncloa last Monday without much success for an income pact, which limits salary increases and avoids an inflationary spiral.
In the media of the Executive it is recognized that, although the president did not expose it openly, his intention is to extend these ceilings to pensions, as elEconomista advanced this week. A rise of 6.5 percent to match inflation in pensions destroys the plans of any government. The Social Security deficit can double to nearly two points of GDP.
Now you see populism behind the increase in the SMI by more than 30 percent in recent years or the increase in public salaries above inflation or public spending. These are measures that we will all pay for in job destruction and loss of purchasing power.
To make matters worse, the president of the ECB, Christine Lagarde, threatens to withdraw debt purchases and the markets already anticipate a rate hike in October. The war, like the great storms, will sow chaos, cause shortages and aggravate the fragility of the Spanish economy and its battered public accounts, which the Government had covered with European aid.
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