“The recovery is slowing down”, the phrase pronounced this Thursday by the president of the ECB, Christine Lagarde, confirmed what we have already perceived in recent months. There is also no more than taking a look at the latest composite PMI for the euro area, at nine-month lows, with economies like Germany stagnant for the first time in a year and a half.
The braking is more intense in the service sector and, therefore, it will be felt more strongly in countries such as Spain, where the tourist activity acts as one of the growth engines. The return to restrictions throughout Europe, especially on travel, threatens to pulverize the Christmas campaign.
In our country, the effect will be noticeable twice, because the automobile is the most affected sector within the scope of the industry. Savage closures in China over the omicron will prolong supply problems.
Lagarde’s words contrast with those of the first vice president, Nadia Calviño, who takes advantage of any forum to highlight the strength of the recovery. Calviño bases his explanation on three magnitudes that yield record figures: Social Security contributions and unemployment, Treasury collection and exports.
Sánchez will breastfeed at the end of the year with the recovery, despite the fact that the data is very uncertain
But much of it is smoke, flower of a day. As we have explained several times, these are distorted elements. European aid or inflation inflate both Social Security and Public Finance contributions, as well as exports. As for the unemployment data, it is also unreal, the hours worked are still below 2019.
The vice president has a piece of paper ahead of her, because she has to prepare the ground for Sánchez’s end-of-year speech, in which under the title of “Complying” she will review all the reforms carried out in this exercise to show her chest of its management.
That explains too Government pressure on employers to sign the labor counter-reform before the end of the year. Garamendi is between a rock and a hard place, as he explained to his executive committee this week, he will probably have to accept ominous conditions in order to prevent them from legislating roughly.
In the last sessions, the second vice president, Yolanda Díaz, in collusion with the unions, came to put on the table the abolition of free dismissal, in case it is inappropriate. The bosses put their hands to their heads. He interprets it as a warning to sailors of what awaits them if they refuse to stamp their signature on the final document, as they already did with the rise in contributions to finance pensions until 2050.
The ECB refused to raise interest rates as in the US due to the weakness of countries like Spain
The question, however, is how many far-reaching reforms, aimed at changing the course of the economy, Sánchez presented during this legislature. The answer is simple: none. Labor can have just the opposite effect and cause an investment stampede.
Even with European funds they have invented a euphemism to give the impression that the deadlines are being met, and that is a lie. Calviño assures that about 60 percent of the 24,000 million received is already committed. But it does not reveal how much is paid out or even allocated to specific projects. There the answer is a ridiculous or irrelevant amount.
In the Budget for the current year, the Vice President estimated the boost to GDP growth from the Next Generation program at 2.5 points. The harsh reality is that the effect will be zero patatero. This would explain, in part, why the INE lowered the GDP forecast and also why the Bank of Spain reduced the forecast for this year to 4.5 percent this Friday, two points less than Calviño’s forecasts, which inflated them via European funds.
The Government has another problem: the inflation that does not stop. The third vice president, Teresa Ribera, lost the cost of electricity, which breaks record after record, without finding a remedy to prevent it. Brussels this week overturned its plan to reform the wholesale market, which is based on the price of gas.
The forecasts are also that prices will continue to rise. The harshness of winter, especially in Central Europe, will increase energy demand, coupled with the closure of several nuclear power plants in France and Spain, as well as Russia’s tensions with Ukraine. The new German Chancellor, Olaf Scholz, uses the Nord Stream II gas pipeline as a pressure weapon so that Putin does not invade Ukraine. But the Russian president is not easy to convince, he ordered maneuvers on the border.
Sánchez himself acknowledged in the European Council held this week that the rise in electricity “puts the recovery at risk.”
Ribera also has another problem. The Minister of Finance, María Jesús Montero, wants to reduce the exemption of charges introduced this year in the price of electricity, such as the reduction of VAT or the Tax on the production of electricity. If these spend from 90 to 30 percent of their weight in the rate, as anticipated by the Economist, they will make the electricity bill more expensive.
The governor of the Bank of Spain, Pablo Hernández de Cos, distrusts Ribera’s solutions because it doubles the inflation rate to 3.7 percent in the estimates for 2022 due to energy.
Inflation is also Lagarde’s big concern for the year to come. The forecast is for it to increase by 1.8 points, to 3.2 percent in 2022.
The first question that arises, and the markets have not yet been made, is whether Germany will allow consumer prices to far exceed the ECB’s mandate to hold them at around 2 per cent without calling for an interest rate hike, as the United States Federal Reserve has just announced. I really doubt it. Some investment banks like Deutsche Bank have already started raising the alarm about the South’s over-indebtedness.
But even assuming Lagarde’s roadmap is met, debt purchases would be cut in half in March and to 20 percent from the current figure by the end of 2023.
The ECB has approximately a third of the Spanish debt, which this year jumped above 120 percent of GDP. The Treasury insists that foreign demand remains stable at 40 percent and short annual maturities will be reduced by 10 percent thanks to the policy of lengthening the term of issues in recent years.
But it will be impossible to maintain negative costs of -0.04 percent like this year. How will the risk premium behave when purchases by the monetary institution are reduced? It is obvious that the price and cost of financing will go up.
The news comes at a bad time, because the Minister of Social Security, José Luis Escrivá, has just linked the growth of pensions to inflation, which this year alone will cost us an extra 5,000 million.
How is the Government going to resolve the increases in pensions, civil servants’ salaries and debt if, in addition, there is a slowdown in economic activity? I would like Sánchez to explain it to us in his end of the year speech. But I’m afraid it won’t.
Why doesn’t the ECB act more forcefully with a rate hike like the Bank of England did or the Federal Reserve will? Because the economies of southern Europe are still very weak and to make matters worse they have indebtedness, unemployment rates and suffer higher inflation than their northern European neighbors.
We are cheating ourselves in solitary with the fiction that the recovery is solid and the speed with which the omicron is expanding will force us to face the harsh reality.
PD.-The business news of the week is the rescue of Air Europa. The State will become one of the relevant shareholders of the Hidalgo company thanks to the Sepi loan and the ICO loans. This is the consequence of not calculating well the risks of the companies to which money is lent to get ahead. What does the Government paint in an airline? With everyone’s money we will socialize the losses.
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