Ramón TamamesProfessor of Economic Structure, Jean Monnet Chair of the European Union and member of the Royal Academy of Moral and Political Sciences, gives his views on the four areas of action to be developed in the post-COVID-19 scenario: health, the economy, the welfare state and the European Union.
Tamames sets out what needs to be done in each area to achieve a rapid recovery from the COVID-19 crisis.
Health
According to Tamames, "the role of specialists in epidemiology is key to defining the exit strategy, and to understanding the origins, evolution and possible persistence of the pandemic".
"Without an adequate vision of public health, and its impact on economic and social activity, it will be difficult to have the resources to solve the problems, starting from the five phases of de-escalation, from zero to four. In Spain, attempts have been made to systematise the normalisation process, taking into account only the flattening of the curves for deaths and people in the ICU. There are very few certainties.
For this reason, a full health investigation is needed into what happened. Without skimping on resources, and with input from experts, including the World Health Organisation (WHO). And we must ask ourselves why, on 8 March, massive political demonstrations were authorised throughout Spain, which led to thousands of contagions; and why mortality rates in homes for the elderly have been so high. Spain is, after Belgium, the country with the highest mortality rate per million inhabitants, 553".
Economy
Tamames recommends focusing on the impact of the pandemic on GDP. "The first quarter fell by 5%, so it is not expected to fall by less than 15% by the end of the year. Because the sectors affected are key to the economy, such as tourism and the hotel and catering industry.
Forecasts
Thus, "the Government calculates a fall in public revenue (including Social Security) of 25.7 billion euros, -5.4%, from 471 billion in revenue in 2019. And public spending could soar by 35%, to €627.3 billion. With a revenue/payments deficit of 31.14%, the level of GDP fall could reach 15%."
This is an "unprecedented situation. During the civil war, GDP fell by 401 Tbp3T, for every year of fighting. The GDP per capita of 1935 did not recover until 1951, i.e. 16 years of depression.
In the current situation, "the fall in GDP could slow down even in 2020, and we could see an increase in income in 2021, by 6 or 7%. Full recovery would not come until 2022 or 2023.
Tamames assesses the measures that have been taken so far:
- It is necessary to speed up procedures and reduce the cost of loans to companies in general, and especially to SMEs and the self-employed, guaranteed by the ICO, to around 100,000 million euros.
- The ERTEs are not being managed diligently. Many beneficiaries have not received their May unemployment benefits. And many companies with ERTEs would have to pay benefits if they do not meet all the already difficult requirements. It is therefore necessary to know how much real unemployment there will be when the ERTEs end.
- At present, there may be as many as 100,000 insolvency proceedings in progress, which would clog up the judicial machinery.
Scenarios and budgets
Professor Tamames proposes a "roadmap" for economic recovery.
- Develop a macroeconomic scenario and its expected evolution from 2019 to 2022, taking into account the different GDP variables, based on the 2020 stability programme update.
- Complete this scenario with GDP by productive sub-sectors of goods and services: main industries (automobile, capital goods) and services, such as transport, hotels and other branches. To identify the recovery measures and the pace needed for each.
- Translate the expenditure and production scenarios for inclusion in the 2020/2022 State Budget, deploying extraordinary budgets for four years (2020 to 2023). Budgets that should include inputs y outputs The EU's external and domestic (especially EU) financing scheme is also needed.
According to their estimates, the estimated public debt could reach 115% of GDP, adding 20 points (248 billion euros) between 2020/2022. Despite the magnitude, the tax "axe" suggested by the PSOE/UP government would not be effective. Raising the wealth tax to 3.5% would provoke not only capital outflows, but also a lack of enthusiasm among companies.
Welfare state
Professor Tamames argues that the COVID-19 crisis "will have to change the current welfare state model, which includes pensions for retirees and other population groups, unemployment benefits, or temporary subsidies for certain groups of self-employed people.
The Minimum Vital Income (RMV) will have to coexist with an environment of skyrocketing expenses in the Autonomous Regions to alleviate the coronavirus. The General State Administration already has 16 billion to distribute among the autonomous regions, but with no criteria for distribution.
Unemployment is the most complicated issue, as the resources for 3.2 million unemployed in 2019 (18 billion euros) will have to increase significantly. To subsidise the one million unemployed in companies that have already disappeared, and the self-employed who have ceased activity, plus those who, on or after 30 June, cease to be covered by ERTEs and do not return to work. Another million more people. Unemployment could rise to 30% of the active population, and resources are needed to subsidise unemployment".
According to the Minister of Social Security, the RMV can benefit one million families and four million people. With an average of 1,095 euros per month per family, which will come from the 416 euros of unemployment for this segment, plus additional transfers. An additional cost of 3,000 million per month, although this figure would gradually fall until we return to a "normal" unemployment rate, for example the 3.2 million unemployed in 2019.
European Union
The role of the European Union is key to the recovery. Through measures such as "the SURE Programme to help employment, financed by member states, to the tune of 25 billion euros. Money that will serve as a guarantee to issue bonds worth up to 100 billion euros, aimed at helping the countries with the most precarious employment.
Spain could receive up to 20 billion euros, given the greater impact of COVID-19. Another option is to turn to the European Stability Mechanism (ESM), which could provide liquidity to each country to the tune of up to 21 trillion trillion euros of its GDP. In this case, this would amount to €24 billion.
Both programmes would provide Spain with 44 billion euros. In the case of the ESM, through ten-year loans and interest rates of 0.20%. Although we will have to wait for the final figure and the criteria for receiving aid. In any case, turning to the ESM will not be like in 2008, there will be no "men in black" and it will not be a bailout.
Support from the European Central Bank
The ECB's role will be crucial in expanding the Eurogroup's support to an estimated €1.5 trillion. Key to this will be the stance taken by ECB president Christine Lagarde, who appears to be following in Mario Draghi's footsteps in her enthusiastic support for measures to boost the recovery. With measures such as the following
- Facilitate liquidity to banks by providing credit with collateral that could include even "junk bonds" issued by companies.
- Finance large companies by buying corporate bonds in the secondary market, as the US Fed did in 2018, and Draghi at the ECB since 2012.
- Buying public debt of the Eurogroup states on the secondary market (mainly from banks and investment funds), against the ruling of the German Constitutional Court, which considers it inappropriate.
Other possible sources of funding
Tamames refers to the project European Green Deal for the green transition, and proposes to merge the pre-pandemic plans, with the Green Pact and the Digital Agenda in place. The idea is to focus recovery on sectors and activities with a sustainable future. Because in the short term, many green investments and digital projects may already be technologically mature, but need the momentum to be presented to the EU.
In Spain, CEOE experts such as Fátima Báñez and Marcos Peña, and organisations such as the National Construction Confederation, SEOPAN, ANCI, etc., could be in charge of representing Spanish projects in the EU. Finally, it is important not to forget the role that the foreign goods and services sector must play in order to emerge from the crisis (export-import), as was the case during the previous financial crisis.
Conclusions
He concludes his lengthy article by acknowledging that all his proposals are subject to the evolution of the recovery, although "it is important that the National Reconstruction Commission of Congress take into account the macro scenarios, strive to pass the extraordinary budgets, and be attentive to EU decisions".
Tamames therefore advocates that "the State should combine its own efforts with those of the private sector according to the OECD/European Union model, where Spain is. Giving economic and social agents, and employers and trade unions, the importance they should have in the recovery. Giving a voice to CEOE/CEPYME, CCOO, UGT and other trade union forces, as well as other institutions. Because public/private cooperation is essential for a rapid recovery. We cannot be guided by the attitude of some members of the PSOE/UP government, who portray themselves as anti-system of the economy.
For this reason, he says, "any idea of nationalising companies, or remunicipalising, or turning Social Security into a kind of general asylum to buy votes, should be ruled out. The government must make this clear, and pass it on to the National Reconstruction Commission. Otherwise, the crisis will drag on much longer".
Javier Ferrer
Head of the Financial Area of PROA Comunicación