Spain: The Dismal Inputs From The Reconstruction Committee

spain congress

Juan Pedro Marín Arrese | The current pandemic has delivered a shocking blow to the economy worldwide. The lockdown to prevent contagion spreading brought many activities to a halt, lowering demand to unprecedented levels. The road back to normal is underway. Yet, consumer confidence is still plummeting while most companies have shelved their investment plans. Significant changes in demand will force widespread changes in industries and employment.

Spain faces dire prospects according to most estimates, as its crucial tourist sector is taking a heavy toll. Up to now,the Government has struggled to mitigate the ensuing onslaught on employment by financing temporary layoffs and supporting low-income households. Yet, GDP will plunge in 2020 and will probably display a sluggish rcovery in the following couple of years. Lower income levels and a substantial surge in unemployment will sharply cut down demand and output.

While the Government proposed a negotiating table to all political parties to address the economic reconstruction, it had to cave in to an alternative option supported by the leading opposition group. Thus, a parliamentary commission was set up. As might be expected, this forum paid little attention to future action, focusing instead on mutual retribution and harsh indictments between participants. They played the blame game over who was responsible for the deaths caused by the pandemic.The so-called experts assisting the commission have only provided general ideas, refraining from tabling any articulate proposal for policy action. Even the President of the Spanish Central Bank did not go beyond recalling the desperate economic outlook and pressing for a long-term agreement to tackle the crisis.

The commission is due to deliver its conclusions. The proposals from the parties in government, which embody a vague and rather useless set of actions, utterly miss the point. Other recommendations follow a similar pattern. While pressing for better equipment and more resources in the health service seems an obvious choice, aiming at reinforcing the industrial muscle stands as mere wishful thinking. No one has tabled concrete action to help companies to survive and overcome the current difficulties. No one acknowledges that only by bolstering business confidence, can Spain expect to mitigate the inevitable damage.

The Government hopes to bridge the budgetary gap through massive income coming from Brussels. Yet, it has no plan to support and invigorate the economic activity, other than promoting the development of the digital and green economies. It seems to ignore that such changes will bring about less employment and output. Switching to a digital environment involves laying-off manpower. And shifting to a green economy, while bringing benefits to health and individual welfare, rises production costs and sharply reduces the competitive edge. The European Commission presses for those objectives trying to secure a deal on its ambitious plans to inject considerable support. As money will ultimately revert to industries located in central and northern Europe, it is no wonder that Germany has staunchly favoured this approach.

While the Reconstruction Commission in the Spanish Parliament has undertaken every possible move to deconstruct and demolish any political consensus, it is hard to believe that the Government will enjoy reasonable room for manoeuvre to implement swift and effective policies. As the current consensus in the face the pandemic is fading away, Spain will enter into dangerous territory. Sooner or later, the markets will start wondering about its budgetary resilience, and the solvency gap credit institutions may face. Regardless of the leeway provided by Brussels, investors will not wait to deliver their own judgement.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.