Behind accident The year 2008 and the dose of austerity in which southern European countries were treated, the arrival of covid-19 meant a change in mentality. Social democratic governments and pressure from different populisms, a clearly Keynesian interpretation of the circumstances: The public budget, fueled by an overdose of debt, had to avert the collapse that the developed world was on the verge of. All instruments—monetary, financial, budgetary, fiscal—were put at the service of this purpose. In reality, there seemed to be no alternative to treatment. shock was applied at that time. And it certainly didn’t, and it doesn’t now. After the crisis, there was a threshold of inflation unheard of since the 1970s, and although this has helped – at least to some extent – drive the deficit margins of States, and the brutal leverage that has accumulated over the past decade now threatens. By smashing the savings of the average citizen and setting social peace on fire due to the rise in Euribor and the constant erosion of wages.
The war in Ukraine, the latest inflation data and the dangerous government crisis in Italy (DraghiThe euro’s savior in 2011 was the man from Brussels who tamed transalpine finance) has accelerated the decision of the more aggressive European Central Bank, raising rates above what was initially expected: 0.5%, a start to the future to move interest rates in the euro area from zero to closer to 2% necessary increases or negative levels we have seen in recent years. The aim is economic growth and hence employment and necessary social cohesion. The price to be paid for southern countries, including Spain, will be the necessary budgetary adjustments to deal with the effects of the rise in interest rates. These adjustments will of course need to be measured if they do not want to do more damage to some countries already heavily hit by the previous crisis. It’s actually very conservative.
With this intention, the ECB has launched an anti-fragmentation mechanism, which means it can directly intervene by purchasing the debts of countries that might be attacked by financial sharks. The aim is to avoid uncontrolled increases in risk premiums in the weakest countries, as, for example, Italy and Spain. Will the program work? Probably yes, but it will still have an associated cost to governments: nothing comes for free. That would mean cutting the deficit and channeling debt. In part, inflation will make it possible to increase income and reduce the impact of debt on GDP, but this will not be enough. The 14,000 million Euros already calculated for this year in order to compensate for the CPI of retirees leaves a gap that will shake the budgetary foundations of our country. Let’s rely on tourism, the traditional lifeline of the Spanish economy, to keep the wheel of growth turning and avoid falling into an economic depression. We’ve had many bad years, many cycles without looking up.
Source: Informacion
Barbara Dickson is a seasoned writer for “Social Bites”. She keeps readers informed on the latest news and trends, providing in-depth coverage and analysis on a variety of topics.