Nadia Calviño

Nadia Calviño.

25-02-2021Juan Carlos Hidalgo - cmm - EFE

WHEN politicians in the Balearics and Spain say that the region/country have been among those most affected by Covid, they are not wrong. Where Spain is concerned, the harm was appreciated way back during the first weeks of the crisis last spring.

It wasn’t just the Spanish government saying this. The EU recognised the situation, so did the IMF and the OECD Organisation for Economic Cooperation and Development. Because of the impact, Spain’s recovery was always going to be heavily reliant on EU funds, and the EU is to be generous.

Last week, Spain’s minister for economic affairs, Nadia Calviño, gave an indication as to how the government intends spending the 140 billion euros recovery fund, half of which is in the form of direct grants and half a loan on advantageous terms.

Of this amount, 27 billion is being drawn down this year, or rather the money has been borrowed - as itemised in Spain’s 2021 budget - in advance of any payment actually being made. Spain has to present its plan for the recovery funds for approval by Brussels, which is expected to be by the end of June.

Meanwhile, and if one goes back to earlier in the crisis, analysis was made of how Spain’s fiscal stimulus measures compared with other European states. These equated to 3.7% of GDP (2019’s GDP, that is) and were below the likes of France and Germany.

Deferral of tax and social security payments represented only 0.8% of GDP. Italy, by way of contrast, was at 13.2%. Funds to provide liquidity placed Spain well below Italy (32%) at 9.2%. Germany and France were again higher.

The IMF and the European Central Bank (ECB) have concluded that Spain has more or less done what it has needed to in order to combat the economic impact, but they have also pointed to less money having been spent than by other European countries.

That analysis of fiscal stimulus, deferrals and liquidity said its own story. From the outset of the crisis, Spain’s response has been more, shall we say cautious, than that of others. And in this context, one has to consider the demands which have been made for months for direct aid.

The government has contributed in direct ways, such as through the ERTE scheme. As noted last week by the government delegate in the Balearics, Aina Calvo, support for ERTE in 2020 in the Balearics amounted to 618 million euros. It was what else she noted which revealed how the government has approached its assistance.

While there was something over 1,000 million euros of Covid aid (ERTE, reinforcement of essential services, for instance), this aid was dwarfed by the 3,467 million euros of loans.

While business has repeatedly thanked the government for the loans, it has been pleading for direct aid. Loans, it is feared, will end up not being repayable.

This is one argument. Another is that governments such as the French and German have been willing to fork out substantial sums of direct aid, and these other governments have done so in the hope that they can stave off indebtedness and the inevitable consequences of the debts - bankruptcies.

The IMF and the ECB have both been warning about the potential wave of bankruptcies. They are not alone, as employers associations in the Balearics (and elsewhere in Spain) have been warning the same thing.

Businesses failing left, right and centre could result in problems for the banking sector, something that all governments have desperately been seeking to avoid. Covid has not been like the crisis that arose in 2008 in that it hasn’t been a financial crisis as such, one to shake the banking sector.

Were there to be an additional crisis of this sort, the consequences would be even more horrendous than they already are.

The other day, there was a meeting of the IMF, ECB and European Commission at which the warning about indebtedness was repeated.

This meeting also highlighted the potential growth in inequality of European economies. Spain, at least partly because of its tourism reliance, stands to being more negatively impacted in this respect than others. The meeting’s principal conclusion was that there must be direct aid. Basically, there is no other option.

The government, which itself runs the risk of being saddled with increased debt if there are loan defaults, is clearly changing tack. A reason for President Armengol and Iago Negueruela having gone to Madrid last week was to get some idea from Nadia Calviño about direct aid, which is really where the EU recovery fund comes into play.

This fund, it has to be said, does come with some strings attached, as the EU has its green and digital transition objectives. Fortunately, so do the Spanish and Balearic governments and much of business.

But the questions are how much of this aid will come to the rescue of many a small business and whether businesses can survive in the time it takes to potentially rescue them. The fear of indebtedness and bankruptcy grows.

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