Spain has done more or less what it had to do to combat the economic effects of the coronavirus crisis, but it has spent less money on the effort than other countries, according to the European Central Bank (ECB) and the International Monetary Fund (IMF).
Although the executive’s rhetoric has not changed significantly, the Economy Ministry is now admitting that the third wave of the pandemic “will negatively affect growth” at least in the first quarter of the year, according to a document seen by EL PAÍS that also warns against prematurely ending relief measures for struggling businesses.
We are going to increase direct aid to businesses and the self-employed affected by the pandemicEconomy Minister Nadia Calviño
The deterioration of the economic forecast in a country that has already experienced one of the sharpest contractions in Europe, and the risks that this entails, suggests that Spain will introduce more support initiatives over the coming months while the country waits for the positive effects of the Covid vaccines and the release of €140 billion in European recovery funds.
Failing that, there is a serious risk that the economy could soon be dealing with a wave of insolvencies that both the IMF and the ECB have been warning about. And that could lead to trouble for the banking sector, which the government wants to avoid at all costs.
The report seen by EL PAÍS underscores the need for measures, stating that it is “indispensable to avoid a premature withdrawal of support, and to organize schemes to assist viable businesses.”
And at a talk organized by Barcelona’s Cercle d’Economía association on Monday, Economy Minister Nadia Calviño offered a few more details about the kind of policies planned by Spain’s minority government, made up of a coalition of the Socialist Party (PSOE) and the leftist Unidas Podemos.
The executive wants to activate “as soon as possible” direct aid for struggling companies, which has been a key demand of business leaders, unions and others who are dissatisfied with a recent relief package that focused on tax breaks, state-guaranteed loans and other forms of indirect support. Regional governments in tourism-dependent areas have been especially vocal in their demands for direct aid, a move that is also supported by Bank of Spain Governor Pablo Hernández de Cos, the opposition Popular Party (PP), and even some members of the executive itself.
The Economy Ministry’s document cites a report by the Bank of Spain, whose position is that while the government’s credit-based measures have helped companies stay afloat, the latter’s debt levels have soared as a result. In other countries, credit schemes have been complemented with direct aid. The Spanish central bank has warned that insolvency could affect nearly one in five companies if the effects of the crisis are long-lasting, particularly in an economy that is highly dependent on sectors hard hit by the pandemic such as tourism. And the effects could be compounded by the structural problems of the Spanish labor market, which relies heavily on temporary contracts.
Forecasts overtaken by reality
Calviño continues to uphold the ministry’s economic forecast for this year – a growth rate of 7.2% that could rise to 9.8% if the EU funds are spent – but the market consensus is that those figures have been overtaken by reality. And the 28-page report seen by this newspaper admits that “some of the sectors hardest hit by the crisis (hospitality, transportation and recreational services) will still not be back to a normal situation at the end of the year.”
The minister defended the government’s policies despite the warnings from international organizations about the country’s insufficient response to the crisis. She noted that the executive’s measures represent “20% of gross domestic product (GDP)” including public loan guarantees, the ERTE job retention scheme, support for the self-employed and the guaranteed minimum income scheme.
But she also pledged to “adopt new measures or instruments as long as they are necessary,” and stressed that “we are going to increase direct aid to businesses and the self-employed affected by the pandemic,” with a focus on small and medium companies and on viable firms. The key will lie in defining what is a viable firm.
A piece of advice that former ECB governor Mario Draghi reportedly gave French finance minister Bruno LeMaire at the outset of the coronavirus crisis could well make sense for Spain too: “Spend your money, my friend. The time has come to spend. Now. Later it will be too late.”
English version by Susana Urra.