Governor Pablo Hernández de Cos of the Bank of Spain argued this week for a coordinated, common tax response among European Union nations in the face of the war in Ukraine. He highlighted the idea of mutualizing public expenditures as part of a broader fiscal strategy that would help member states weather shocks more effectively.
While appearing before the Congressional Economic Affairs Committee, Hernández de Cos noted that the conflict is likely to push up public spending. He suggested that many of these pressures could be better managed through strengthened coordination among European countries, rather than relying on isolated national measures. The thrust of his remarks was clear: shared fiscal tools could cushion the region from uneven shocks and preserve social and economic stability across the bloc.
In presenting his assessment, the Governor described the Spanish economy as facing challenges that are broad in scope and demand a decisive policy response. He stressed the need for political and social consensus to implement reforms that can underpin sustained growth and resilience in the medium term.
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Hernández de Cos went on to examine the impact of the labor market on Spain’s prospects from multiple angles. He addressed how the structure of temporary employment arrangements influences the professional development of workers, the way turnover affects human capital, and how unemployment has evolved over time. These factors shape both the quality of the labor force and the economy’s ability to adapt to changing conditions.
The Governor also called for careful monitoring of the new RED mechanism, which reallocates resources across companies and industries. He argued for a clear, comprehensive strategy to support lifelong learning and the reskilling of workers so that skills stay relevant as the economy shifts. This approach, he explained, would help workers transition smoothly as industries evolve and new opportunities emerge.
Another area of concern lies in housing access. He warned that rent controls might have unintended negative consequences and urged close observation of the housing market amid inflationary pressures that affect households’ purchasing power and financial health. The aim is to balance affordability with market incentives and avoid distortions that could hinder long-term stability.
The governor also reiterated that, once the epidemic and the war subside, a fiscal consolidation plan should be in place. He warned that the current debt level represents a vulnerability that could worsen if not addressed. He projected that the debt ratio would keep rising unless an ambitious fiscal adjustment plan is implemented. For instance, if structural balance improves by 0.5 percentage points of GDP each year, debt could be reduced to about 82 percent of GDP by 2040, offering a pathway toward greater fiscal resilience.
(Source: Economic remarks by the Bank of Spain governor, presented to lawmakers and public observers.)