Carlos García Hernández – Spain: Opportunity

Unidas Podemos, one of the great leftist hopes for Europe, has the choice of selling out its progressive credibility to remain in a Social Democrat coalition or serving the interests of the Spanish people.

Carlos García Hernández is managing director of the publishing house Lola Books

Cross-posted from the Spanish article in el Comun

Translated and edited by BRAVE NEW EUROPE

An opportunity is opening up before Spain’s left party Unidas Podemos: prevent the 3% deficit limit imposed by the euro group Stability and Growth Pact (SGP) from ever coming back into force.

On 20 March 2020 the EU suspended the application of this limit due to the coronavirus. If Unidas Podemos manages to ensure that, once the crisis is over, Spain will no longer be subject to this limit, it will have achieved a victory for the left that will strengthen it electorally. If it does not try, or even worse, if it supports the deficit limit coming back into force, the consequences for living standards in Spain will be devastating and it is quite possible that in the next Spanish general election Unidas Podemos will experience a devastating defeat.

When, in early March 2020, the coronavirus made its appearance in Europe, the European Union had two options: to react as one nation and adopt the motto of the Three Musketeers “all for one and one for all” or to react under the motto of “every nation for itself”. As was to be expected given its history, the EU opted for the second option.

The first corpses were beginning to pile up on the streets of Bergamo and other towns in northern Italy. Italian and Spanish hospitals were also beginning to raise the alarm about the emergency situation. On 11 March, Italy announced that, together with France, it was going to ask for an emergency macroeconomic stimulus plan. This plan proposed a rise in the Italian public deficit from 2.2% to a modest 3.3% this year, thereby exceeding the 3% deficit limit imposed by the SGP. The emergency situation required this. The increase in deaths was already exponential and it was clear that both Italy and the rest of Europe were facing a real humanitarian catastrophe.

The EU’s response was an emphatic No. Three countries took the lead in crushing the Italian request: Germany, the Netherlands… and Spain. The coalition government of the PSOE and the Unidas Podemos thus abandoned our Italian brothers in a decision of unprecedented cruelty. At the height of the humanitarian crisis, with thousands of deaths, with hospitals bursting with critically ill corona patients, with exhausted health professionals, and without sufficient means to deal with the pandemic, the Spanish government’s finance minister, Nadia Calviño, declared that she was opposed to the Italian request in order to avoid “irresponsible behaviour”.

Instead of allowing Italy, through a small increase in its deficit, to immediately increase its spending on health and social services, Calviño invited the Italian government to immerse itself in the tortuous bureaucratic world of the EU treaties, since, if you look hard enough and the foul smell of the decomposing bodies of those killed by the coronavirus allows you to read on, Special flexibility clauses can be found in the SGP to help the most damaged economic sectors and to grant partial tax deferrals to companies that can prove that they have been affected by the pandemic, which can also ask at the relevant desk for access to liquidity increases that will be properly considered. According to the Minister of Economy of the Kingdom of Spain, Nadia Calviño, this is acting responsibly in the face of the greatest European health alert since the Black Death in the 14th century, but to immediately increase spending on hospitals, doctors, nurses, medicines and health equipment is irresponsible.

While applauding his outstanding pupil in the Spanish Ministry of Economy, Germany also continued with its particular “every man for himself” polciy. On 4 March 2020, Germany banned the export of face masks and medical equipment. In other words, in view of the health alert, Germany, one of the countries with the largest production of pharmaceutical and health supplies in the world, could have chosen to increase its expenditure and production of this type of material to help other European nations in a situation of extreme hardship. However, it chose to ensure that all medical equipment produced in Germany would remain in Germany and be used only by Germany. Italy had to wait alone, abandoned and without the possibility of increasing its expenditure until 13 March, the day when the humanitarian aid sent by the People’s Republic of China began to arrive.

At this point in the nightmare, it was already clear that the only viable response was to eliminate the deficit limit imposed by the SGP and that all the countries in the Euro Zone would have carte blanche to increase their spending as much as necessary to deal with the pandemic. Everyone was clear about this, except the Spanish government.

On 18 March 2020, President Sánchez presented a package of measures to mobilise 200 billion euros, almost 20% of GDP. This was undoubtedly an astonishing figure. The coalition government did not miss this opportunity to announce the measure with great fanfare. However, the devil was in the detail. The government committed itself to mobilising EUR 200 billion, not to spending 200 billion euros. Of all the specialists I have consulted, the most benevolent to the government estimates that, once the automatic stabilisers (already in place) are taken into account, the actual public expenditure envisaged in the government’s package was only EUR 17 billion, a figure that could at best only mitigate the situation a little during the first weeks of the crisis.

None of the parties that make up the government coalition informed the public of this manipulation of data and Nacho Álvarez, Secretary of State for Social Rights and chief economist of Unidas Podemos, applauded the measure, calling the attempts to relax the EU’s fiscal rules a “waste of time”.

For his part, the package of measures allowed Pedro Sánchez to carry out a strategy that he is very fond of. It is the strategy of kicking the can down the road to gain time in the face of a problem in the hope that, between kicks, something will happen that will change the situation. And in this case the strategy worked.

Finally, on 20 March 2020, the EU took the only measure that can tackle this crisis and suspended the deficit limit imposed by the SGP. This means that, de facto, the Eurozone states will be able to spend as much money as they need to tackle the coronavirus crisis immediately. Governments will be able to buy respirators, masks, and all the equipment and medicines they need, as well as to hire doctors and medical staff, ambulances and all the workers needed to maintain health care for the ill (in addition, Germany lifted the ban on the export of medical equipment).

The suspension of the deficit limit imposed by the SGP is a step in the right direction and brings us closer to the kind of measures taken by nations that have managed to tackle the coronavirus successfully, such as China and South Korea. But it is also a measure that makes clear the irrationality of the limit itself. As the American economist Stephanie Kelton says, “it has taken a virus to dispel the myth of the deficit”.

In my opinion, the person who has best exposed the irrationality of the deficit imposed by the SGP as a result of the coronavirus crisis is the Spanish economist Eduardo Garzón in his article “Where are nations going to get the money to fight the coronavirus crisis? Eduardo Garzón writes: “The nations have, through their central banks, unlimited capacity to generate spending capacity […]. The indicators of deficit and public debt simply indicate the spending capacity that is being created. […] Where are these States going to get the money to fight the coronavirus crisis? Well, from the same place as before, only now the banks will not make profits along the way.”

Therefore, the public deficit is not so terrible that it has to be fought by means of arbitrary limits like the one imposed by the SGP, but it is a tool in the hands of the State to mobilise the necessary resources to solve the problems faced by their citizens, such as the coronavirus. Would it be understandable to limit the number of times per day that a carpenter can use his hammer to do his job? Obviously not. The carpenter uses his hammer whenever he needs it. The same applies for the state and the deficit. The State must incur all the necessary deficits in order to be able to solve whatever problems afflict its citizenry. It is as simple as that. That is exactly what, because of the coronavirus, the EU has done by lifting the deficit limit of the SGP.

However, this leads us to an obvious question: once we get over the coronavirus crisis through public spending on health, could we not use the deficit to increase pensions, alleviate unemployment, improve education, create public housing and so on? The answer is that of course we could.

Deficit limitation is an ideological instrument imposed by the financial oligarchy to control the population. This oligarchy has led citizens to believe that public spending money is taxpayer money, but this is not true. The state does not collect taxes in order to spend because the state creates the money. It is not the public sector that needs the private sector to finance itself, but the opposite. Public deficits are another name for private savings, because the money only comes from the central banks and when the states spend, the private sector saves. That’s why Henry Ford, the creator of Ford’s cars, said in 1922: “If people understood how our financial system really works, I think there would be a revolution tomorrow morning.

Take for example the case of involuntary unemployment. Unemployment is a monetary phenomenon and monetarily sovereign states choose what level of unemployment they want to have. Since states cannot be left without the money they create out of thin air through computer keystrokes at central banks, states can buy everything that is for sale in their own currency, including unemployed labour. If states wanted to, they could issue all the funds necessary to hire the unemployed, and if they also did so through job guarantees based on employment buffer stocks, they could do so without generating inflationary pressures. Then unemployment would disappear and with it the rubbish contracts and precariousness. Do you see the class contradiction between monetary sovereignty and deficit limitations? Who benefits if for every miserably paid job there are dozens of unemployed workers willing to accept it? Does it benefit the employer or the worker? In 2013, the Greek economy contracted by 20% and unemployment exceeded 27%. If, because of the coronavirus, the EU has suspended the deficit limit of the SGP, was there not reason to do the same with Greece in 2013? Why was it instead that even greater constraints were imposed on Greece, forcing it to incur public surpluses that went straight into German and French banks while 54% of the Greek population was suffering from food insecurity? Fortunately, these are issues that are beginning to be discussed by European public opinion.

Unfortunately, Unidas Podemos made the mistake of entering the current government coalition by signing an agreement with the socials democratic PSOE whereby the coalition government undertook to abide by EU treaties, including the SGP. However, the situation has now changed because the SGP deficit limit has been suspended. This was the only measure capable of curbing the coronavirus. Due to the pandemic, Spain has entered a worse recession than in 2009 and it is possible that the Spanish economy will contract by more than 10%. In such a situation, restoring the 3% deficit limit would be a crime. Unidas Podemos has a historic responsibility to try by all means to ensure that this does not happen. If they support the recovery of the deficit limit, the economic and social consequences will be catastrophic and Unidas Podemos will be complicit in the debacle. Its economic programme will not differ in any way from the neoliberalism of the PSOE, Minister Calviño and the right-wing Partido Popular, and will become a mere current within the PSOE government. The electoral crash would be assured. However, Unidas Podemos also has the opportunity to opt for the defense of the welfare of Spanish citizens and to oppose with all its strength the reinstatement of the deficit limit. If it does so, it will opt for social justice and the electorate will remember it at the ballot box.

I sincerely hope that Unidas Podemos makes the right choice.

Euro delendus est.

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