Juan Carlos Barba, Juan Laborda, Stuart Medina – Spain: Either a Recovery Plan or a Great Depression

Spain will have to decide if it wishes to remain with the EU in the past millennium or to take the leap into the 21st century.

Juan Carlos Barba  is an Economic journalist at the Spanish newspaper El Confidencial and has a podcast “Economía Directa”, the main
economic podcast in Spanish language.
Juan Laborda teaches Financial Economics at the University of Carlos III and Money and Banking, Syracuse University (Madrid)
Stuart Medina Miltimore is an economist. He is a founder of the Spanish Association Red MMT and has contributed to the dissemination of Modern Money Theory in Spain by publishing two books, La Moneda del Pueblo and El Leviatán desencadenado. Siete propuestas para el pleno empleo y la estabilidad de precios. Veintiuna razones para salir del euro.

Initially published on March 31, 2020 on Juan Carlos Barba’s blog Gráfico de la Semana

Translated and edited by BRAVE NEW EUROPE

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One of the most difficult and recurrent exercises we have seen in recent weeks is guessing how great the impact of the Covid-19 pandemic on the global economy and on the economy of individual nations will be. Some are optimistic, while others paint a bleak picture. We must admit that the exercise is complicated, because no one has ever experienced anything like this and we still do not have the estimates from national government offices. However, the indicators that have been put forward are not at all encouraging.
China, which began to take measures of confinement in January, has experienced a fall in the January and February industrial production indices of 15%, and other indices of productive activity suggest falls of no less than 6-8%. Let us remember that only one province was completely closed there, while the rest of the country continued to produce.
But in Europe each country has taken unilateral decisions, closing almost all their borders. In a few weeks, the closure will cover the whole continent. For Germany, Heiner Flassbeck and Friederike Spiecker are forecasting a 14% drop in GDP this year. In the US, several investment banks are forecasting a fall of 6% in the first quarter and 24-30% in the second quarter. There, claims for unemployment benefits reached 3.3 million workers last week.

For Spain, things are not looking good either. The authors of this article have made an estimation based on the inventory of damages that we already know about. The tourism and hospitality sectors are completely shut down, so expecting falls in production of more than 90% per month of confinement is not excessive. Much of the retail trade, excluding food sales, pharmacies and tobacconists, has also been very limited, thereby closing the retail channels of most industrial companies. It is not exaggerated to estimate a 15% drop in production per month of closure. Construction, another important sector of our economy, was able to continue for two weeks after the lockdown was decreed, but has been paralysed since. All the shows, cinemas, theatres, and sports venues have been closed for a long time. Air transport is disrupted and much of the land transport as well.

Using the input-output tables of the Spanish economy, although we can only rely on the figures for 2016 because, unfortunately, the National Institute of Statistics does not keep them very up to date, we can predict a drop in production of 9% in the first quarter and more than 30% in the second quarter. In terms of GDP at current prices, we are projecting a fall of 8% in the first quarter and 27% if the closure is extended to May. See Table 1 for the breakdown, from the supply side, for the first two quarters of the year and all of 2020. We have ignored worse scenarios, such as an extension of confinement until June or a return of the pandemic in the autumn. We do not believe that increased healthcare spending and higher consumption of telecoms and IT services will offset these falls. Nor have we been able to incorporate the impact if already reduced foreign trade and investment collapse.


Comparisons to a war don’t seem very promising. We are not experiencing the destruction of physical capital or a massive loss of lives among people of working age. In 1940, John Maynard Keynes published a booklet entitled “How to Pay for War”, in which he tried to respond to the challenge of mobilising and redirecting all the resources of the British economy for the war effort by ensuring a minimum standard of welfare for households. But the problem now is the opposite: how to demobilise virtually our entire economy and get it started after the state of emergency. When the pandemic passes, productive capital and labour will still be there, intact and waiting to be mobilised. Whether the recession is V-, U- or L-shaped will depend largely on the Government’s economic plans.

Calviño, ‘read my lips’, MMT, ‘there is no alternative

The problem is that we have had a Dutch Prime Minister in our nation for decades. We mean all those whose sole economic objective is to enforce the Maastricht criteria. They are each and every one of the finance ministers that the Kingdom of Spain has had throughout our democracy, supported by the networks of power that have been pulling the strings since the Restoration. And now the problem is called Nadia Calviño, Spain’s Minister of Economy and Business.

From the beginning, there was an optimal solution for everyone. The hypothesis was very simple, two months of total confinement, but the income of the workers and the fixed costs of the companies supported with public money. The idea of total confinement after which lost revenues and incomes will be recovered later is a joke, nor does it take into account that thousands of companies that are going to collapse because demand will not automatically return. One alternative, the Danish model, is to save the SMEs at all costs, to paraphrase the apt headline of a recent analysis. It is direct aid to the companies, which will be the ones to receive the compensation and pay the salaries, without any reduction in salaries. In the general case, the state will pay 75% of the salary and the company the other 25%, but with a monthly maximum between 3,100 and 3,500 euros. Obviously, these levels will be much lower here, because of our wage structure. But we have come up against our Dutch Prime Minister, Calviño.

No, this is not about Coronabonds, because it is not about the confidence of the markets, via the mutualisation of debt. The European Central Bank can do what it wants with interest rates and debt yield curves. The ‘money and banking’ theories taught at universities are useless. Money is endogenous and interest rates are quasi-exogenous. No, this does not mean that we should resort to the European Stability Mechanism and then have draconian conditions imposed on us in terms of wages and public spending, which impoverish us as a society. There is only one alternative, direct monetisation, which is what free nations with monetary sovereignty will end up doing and Britain has already done. Or the ECB proposal. This is a tortuous mechanism, but it has the same effect as that of a monetary sovereign who can have an overdraft on his or her central bank account.

The European Central Bank announced a EUR 750 billion Pandemic Emergency Procurement Programme, without requiring Member States to commit themselves to achieving budgetary balance, and therefore inviting them to spend much more and let their deficits expand. There is only one drawback to this mechanism, and that is that the ECB’s support should permanent, because if it were temporary, and at some point they stopped providing it, our debt would be unpayable. Use it, Ministers Montero and Calviño, because otherwise the social, economic and moral damage to our country will be unbearable. And our forecasts will fall short. If, in addition, you do not present a New Deal later, the electoral defeat of the left will be definitive and the ultra-right will come to power.

We are facing an EU that only postures, claiming to defend the republican value of Fraternity, but which, at the moment of truth, defends the law of the strongest, in this case Germany and its satellites. That is why the countries of southern Europe should demand that the EU treat us not as vassal states whose citizens have fewer rights than those of the north, but as equals. And if this does not happen, it is our right not to accept this situation of submission. Because then it will mean that the Eurozone has in reality been nothing more than a set-up that has allowed the German export industry to expand to a degree that would never have been possible if Germany had retained its own currency, isolated as a nation state, and therefore with much higher exchange rates.

We wonder what is wrong with the Spanish elites who accept such a situation. Perhaps, to find the answer, we need to go back to 1953, when national sovereignty was sold piecemeal in exchange for the Empire (the USA) allowing the dictator to die in bed 22 years later. And that same Empire, fearful that the USSR would turn Spain into a satellite of its own, arbitrated a reform in which the fundamental power structures survived in exchange for the establishment of a limited democracy, with a totally domesticated left, a genuflecting right-wing and media overwhelmingly at the service of the ‘status quo’. These elites sell Spanish citizens to the highest bidder in exchange for securing their own particular interests and privileges.

Forty-five years after the dictator’s death, and after the huge setback of 2007-2013, we have been confronted with the problems caused by a limited, corrupt democracy run by bastard interests alien to the common good. Let us hope that, if something positive is to come out of this tragedy, may it be that it allows us to shake off our chains, break with this excrescence of the Old Regime that in actuality is the Regime of 1978, and enable us to start a new era of full democracy at the service of all Spaniards.

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