The economic crisis, lessons learned (II)

As has become customary in this series of documents compiling the lessons learned from both the health crisis and its derivative, the economic crisis, it can be seen that most of the errors made in previous phases continue to be carried over into subsequent ones. 

As was anticipated and soon became clear, the way to attack the economic crisis depends directly and proportionally on the speed of closure and the efficiency of the fight against the health crisis in order to promote its early exit and return to activity. The constant changes in the government's criteria adopted on the basis of, as they say, technical reports and the "real situation", directly influence the form, manner and time of dealing with the attack and the aforementioned exit from the important economic crisis. Due to managerial errors, poor foresight or lack of anticipation, many of the measures and restrictions adopted have had a negative influence on economic recovery.

Among the most important failures, they highlight the fact that the government's communication campaign, from the beginning, was confused with that of an excessive, tiresome and false propaganda campaign; a properly drawn up plan has not been followed; corrections and rectifications are constant and, in general, the government's action to plug the powerful drain on companies is slow, in many cases having the opposite effect and generally late.   

Since it is difficult to find points or actions that are purely and truly positive, I will now go on to relate those that I consider most important, all of them mixed and unclassified; I trust in the intelligence of the reader so that he or she can classify them and rate them positively or negatively.

  
-The need for liquidity and credit for many EU countries, including Spain, is very great and from the first moment it was understood that something had to be done to alleviate it. Although all members have needed to take economic action of their own; for many, such efforts of their own are not enough. The countries most affected economically by the pandemic are Spain, Italy and Greece, among other nearby countries, such as France. As has become customary in EU decision-making, and especially when it comes to large sums of money, final decisions are slow in coming.

- The European Parliament initially approved the mobilisation of up to 2 billion euros. For more than three weeks, the Commission's work has been unable to achieve majority agreement on the form and amount of activating the now familiar Reconstruction Fund, which was estimated at a maximum of EUR 1.5 trillion with hardly any conditions attached. The obstacles to reaching a consensus text come from some central and northern European countries such as Austria, Holland, Denmark and Sweden, which are demanding certain types of conditions, reforms or interests.

- As a result of this deadlock, on May 18, Merkel and Macron presented a joint proposal on this reconstruction fund, which limited aid of 500 billion euros to the countries most affected by the economic crisis resulting from the pandemic. The plan was based on four pillars: health strategy, reconstruction fund for solidarity and growth, acceleration of the ecological and digital transition and strengthening of European industrial capacity and sovereignty. Despite the fact that the initiative provided certain apparent advantages as it was a matter of subsidies and not credits with the idea of preventing the debt of the affected countries from skyrocketing and the millions of euros. Funds to be raised on the markets "on behalf of the EU"; among the drawbacks to this proposal are several elements such as it must be approved unanimously by the 27 and ratified by their parliaments; it implies an increase in the Community budget between 2021 and 2027 - which means that each member country, Spain as well, will have to contribute its corresponding part and nothing small in our case, so that it becomes a reality; it will come in parts in seven successive years via annual budgets; Nor is it a blank cheque for each government to do what it wants with that money, and a large part of it will go to make up for the deficiencies seen during the coronavirus crisis on the basis of European industrial and health shortcomings, something that both are rushing to remedy in order to improve capacities in key sectors so that the EU will never again find itself in such difficult situations.

- Finally, a second major proposal has appeared from the President of the Commission, which differs greatly from the previous one and which is close to mobilising 750 billion euros.  It became known on 27 May last and is a very complex plan that must be approved by all members equally and is also based on the same four pillars as Merkel and Macron. The plan that Von der Leyen will be integrated in the legal scheme of the so-called "European Semester" that includes those already determined and others to be determined controls and specific recommendations, as well as some targeting of investments that countries must comply with - in no case is it a blank check. If all the governments accept this proposal, 310,000 million will be dedicated to direct subsidies for projects approved by the Commission and the rest, 250,000 million, will take the form of credits. The funds will be available to all Member States from 1 January 2021 and will be extended to 202. The Commission will try to concentrate its action on the most affected countries and within them, on the regions most damaged by the effects of the pandemic. 55 billion will be added to existing cohesion policy programmes to be used by the regions as soon as possible, starting now and running for the next two years, depending on the severity of the socio-economic effects of the crisis, including the level of youth unemployment. The proposal adds an additional EUR 40 billion to the Fair Energy Transition Fund and a further EUR 15 billion to the Rural Development Fund.

- The debt incurred will start to be repaid after 2027 and may be extended until 2058. To do this, the own resources threshold of the Community budget will have to be temporarily raised from 1.2% to 2% of the EU's Gross National Income. The additional margin of more than 100 billion euros would be used in the form of state guarantees for joint debt issuance. Brussels will propose to the countries to amortize that amount and to return the interests with a set of own taxes such as: the carbon tax in border, the rights of emission, the digital tax or a tax to the big corporations.   

- In the face of the "lack of haste" in the Union to present cash and cash equivalents to governments in need, in Spain there is also a lack of liquidity in the short and medium term, and an excessive workload in a poorly oiled system, Some incompetence of civil servants or the computer system to process registrations in the ERTEs, EREs and their subscriptions by the employment offices - formerly INEM offices and recently renamed the Public State Employment Service (SEPE) - closed to the public during the pandemic to date with telematic work. This situation has led to a partial and very significant collapse of people - estimated at 800,000, although the government denies this - who, during all this time and without working, have still not received a single euro of what they are entitled to, nor have the self-employed, who, on the contrary, have been required to pay their corresponding taxes. 

- The almost total closure for more than two months, the reopening at a slow pace and with many limitations of the economic and industrial activity, of the centres of recreation, leisure, hospitality, transport, tourism and others has caused the fall not only of those who legally work in those sectors, but also of those who were involved in the underground economy. It is mainly in this large sector of people (several million), where the crisis has hit hardest since all of them have no grip to collect any kind of subsidy, which has caused the exponential increase of the so-called "hunger queues" where people huddle in front of charitable institutions -mainly of the Church- to collect personal or family sustenance from charity. This situation is compounded by the usual homeless people and by those, already mentioned, who have not yet had their case closed in order to have their subsidy regulated. 

- Faced with so much need, the government with all its apparent paraphernalia and capacity does not seem to take serious steps to solve this situation and has been immersed in internal struggles to appear to be the most social; time passes, indignation grows and it is more than certain that a social dissatisfaction will appear which will most probably degenerate into an uprising of a certain entity shortly. 

- Only, after more than a month of internal discussions, today the payment of a complex and difficult to evaluate subsidy known as the Minimum Universal Income -which is already a reason for a change with the PNV, although it is intended to pay for the Social Security- has been approved for only about 850,000 families (needy families exceed 2.5 million).  Initially, from the beginning of June, only about 100,000 will be covered, the most needy ones. The amounts to be paid will vary between 462 and 1,015 euros so as not to exceed the minimum interprofessional wage set at 1,100 euros. The cost will be about 3 billion euros (much more than initially expected) to be included in the budgets. It is compatible and complementary with minor jobs and other similar subsidies at the local or regional level and the person receiving it undertakes to seek work on a continuous basis and/or to train himself to improve his working condition. Concepts, which will be reviewable and qualified per year of being granted in search of possible punishable frauds, which will increase its complexity, lack of clarity and certain animosity. 

- The government, in its newspapers boasting of royalties and hollow promises, has announced two packages of economic measures; the first on 12 March for an amount of 18 billion euros of which the majority of this aid will be used to defer taxes on SMEs and advance financing to the autonomous communities; the other on 2 May for an amount of 16 billion euros as a special non-refundable fund to support the reconstruction of the autonomous communities. Despite having promised to detail both in a short time, we are still waiting for news of how and when they will be effective and to know how much corresponds to each, if they ever become a reality. It is more than possible that this distribution will finally be the reason for new exchanges with the regions most closely related or necessary to the government in order to continue obtaining the necessary votes to continue in its privileged position.  

- For the first time in the history of Spain, the amount for the payment of pensions falls by some 8 million euros per month (0.27%) given that 38,508 pensioners have died. The death rates during the pandemic have acquired a high percentage; specifically 14.2% of those between 70 and 80 years old; 23.45 of the group of 80-90 and 24, 75% for those over 90. To this we must add those who have not formalized their rights due to the closure of the Social Security offices and telematic work; means that many older people do not know or do not have access and have not been able to formalize this right.

- In spite of the above, in order to be able to really confront these expenses, promises and boasts; the government in the council of ministers on May 26 has been forced to "enable" a macro credit of up to 30,500 million to the Social Security due to the hole in the crisis and in view of the lack of cash liquidity. The loan is divided into a credit of 14,002 million to face the collapse of income, and another of up to 16,500 million to pay the benefits of the ERTE and unemployment. Credit that will go straight to being paid with more debt. 

- Apart from the above, and while the EU decides or not to make some cash funds available and how it is going to do it, Spain as we saw, is overturned and almost decided to cover its many needs initially with the largest debt issue ever. Debt for the reconstruction of the country, which some estimate could reach a range of between 130 and 300 billion euros. An outrage that will be paid for by our grandchildren or even beyond.  

- If the European Commission's proposal is approved by the 27, Spain, if its government accepts the conditions imposed on us, would be entitled to some 140,000 million euros, of which some 77,000 would be non-refundable and the rest in the form of loans, all with the limitations and dedications that are finally determined. This amount, which although it is astronomical, is very much in line with everything already exposed and committed to spend to start shooting; so it will be a relief, but nothing more.   

- All of this extraordinary expenditure by the Union does not come from the sky or hang from trees; it represents an added effort on the part of the richest people to which we must bear in mind that the United Kingdom is no longer part of it. It will undoubtedly have an impact on the Union's budgets, which coincide with the same dates in 2021-27. It would not surprise anyone if the countries that benefit most, Italy and Spain, were to suffer greater cuts in the subsidies or payments received from the Union for such things as the countryside, fishing, the environment, industry and mining, and if, as has already been mentioned, our contribution to them were to increase, which would leave our future position considerably weakened.  

- Since before any of this happened, and in accordance with the coalition government's electoral programme - both jointly and separately - to cover all social expenses and subsidies in the portfolio, neither of the two parties has disguised the fact that among their intentions was a powerful tax increase, although both hid it by offering the lure of acting exclusively on large fortunes - which according to Pablo Iglesias, are "anxious to pay much more" to help others - a tax that will really have more of a propaganda effect than a collection effect because it is limited to their investment in Spain; on banks, networks and large computer support companies like Google; financial transactions or Tobin tax and other tricks. 

- In view of the large needs, everything points to the fact that the increases will be widespread and will fall back mainly on income from work, economic activities and real estate capital; corporate tax; those corresponding to consumption as VAT and direct. In total and hypothetically they intend to reach 80 billion collected with this increase in taxes. This amount will be very difficult to reach because the forecasts are very large and the bad omens for most companies and those who receive wages because subtracting money from circulation, always means a difficult recovery or slower and even that does not occur in many years, moving away from another more utopias or inventions of Vice President Calviño who promised us a recovery in V "asymmetric". This tax increase may finish off the free economy and put us into a Marxist one.  We must bear in mind that a higher income tax on higher incomes makes Spain less attractive to companies. 

- Before the aforementioned plans devised by Merkel and Macron or others like them are put into effect, Germany has already seen the wolf's ears after what happened during the pandemic and, at the same time, a great business opportunity in the style of China in the last few months and therefore has just armoured its pharmaceutical and vaccine industry so that the "idyllic" initial plans to work in this field the EU in unison and for all of us have become a "Germany first". 

- Spanish inventiveness and picaresque never cease to appear; it often happens that, in the end, the costs of any increase are always paid by the end user or the taxpayer without being able to escape. It is very clear and evident that the demands of personal hygiene, in the premises, the needs of disposable materials, disinfectant products or of individual protection and the own limitations of capacities among others, suppose an increase of the cost of the products and in its transport, for which in many specialized businesses and face to the public like dentists, workshops, opticians, certain type of restaurants and others, nothing else to open their doors already have rounded up these costs, which supposes a considerable increase of the same products or services offered before the sanitary crisis; an increase that is not legalized and that has already acquired the name of the "COVID fee" which in some cases reaches 50 euros per service. 

- To the above, we must add the monthly personal and family expenditure on masks, which are mandatory in many places and are fungible materials of very little real duration.

- Among the lessons learned from the health crisis, the suppression of jobs due to the forced closure of the business, the partial reduction of staff, teleworking and the reduction of capacity stand out. This situation, by way of cost reduction, in order to recover the money lost due to not earning or being forced to maintain a lower or slower pace due to these reductions, means, depending on the case, a reduction in staff numbers which, after the ERTEs, will be translated into ERTEs since, in many cases, if not for an indefinite period, then for months or years, it is impossible to return to the same type of activity.

- The apparent joke by Minister Celaá, at least initially, about limiting the capacity of schoolchildren and students' classrooms to fifteen children or young people per classroom, has not yet been well analysed in terms of its repercussions. September will come and we will begin to tremble; although some centres are trying to mitigate the measure by expanding the number of classrooms by converting assembly halls, libraries or gyms into several small capacity classrooms. This is detrimental to the completion of education and the need for expansion of school children, and in most cases the efforts will be insufficient. Completing the necessary number of classrooms by means of prefabricated barracks is another alternative solution, which implies a step backwards, great cost, much discomfort, little healthiness and will normally be done at the cost of reducing open spaces for the necessary recreation of the children. Alternative solutions such as splitting up the school day into alternate days by combining it with online teaching becomes an added cost for families with few possibilities, double the number of teachers, tutors or people who stay in charge of the young people while they are at home, if both parents work outside the home or try to find private or subsidised schools where the children's education can be carried out without problems. In any case, in addition to what has been said, everything is more costs, greater inconveniences, purchase of material and acquisition of computer networks that are not feasible or accessible to all and much higher costs in specific material to complete the education of the children.  

- The famous 200,000 million promised to "mobilize" still do not appear except in a small part and with a droplet count. This situation and effect makes a big difference in the amounts to be put on the table and in the efficiency of the same so that most of the countries of our environment inside and outside the EU have been executing for some time.  

- The government has been frankly blind and insensitive to the two or three elements on which our economy and GDP are based; tourism and everything that moves and encloses, hotel services and resorts, leisure and gaming centres and industry with special mention of the automobile. Elements, which together exceed 60% of the national GDP. With respect to tourism, national policy has been harmful because it is contrary to their support and prompt recovery; diametrically different to that put into practice by our Mediterranean neighbours who have applied incentives, bonuses and all kinds of facilities for the opening of their beaches, hotels and inland tourism. In Spain, on the other hand, too many obstacles are being placed in the way of opening up the beaches, movement between regions and, as a cherry on top, a 14-day quarantine was decreed for all those who enter our country; a quarantine that has been very bad for friendly governments, for tourists in particular who have diverted their intentions from coming to Spain and certain similar responses. In an attempt at late and apparent correction, this quarantine will be lifted on July 1, too late. The air sector will lose almost 300,000 million euros and will suffer a drop in revenue of 55%, according to IATA, and will not start their flights until July. Most of the normal and low cost companies will have to cut staff as it has already happened and we will see how many of them disappear. Today, the news of the contagion of the passengers of a flight to Lanzarote has jumped, which puts in question the interested utopia that to fly safely only the use of the mask is necessary. We will see what repercussions this news has if it is repeated in the next few days. The hotels remain closed because of the lack of international flights, because of the real closure of the borders and because, at the moment, only internal mobility is allowed in the same province. 

- In the automotive industry, NISSAN has already confirmed the closure and relocation outside Spain of its plant in Barcelona, which will lead to the unemployment of 3,000 people directly and almost 20,000 indirectly. The reactions of the government (crude pressures, threats of compensatory resources or expropriation and offering the plant to Chinese companies) and of the workers (hard strikes), have not been the most appropriate and may be the starting point for many others, as certain war drums are beginning to be heard from France to recover part of its automobile industry abroad.  The reasons for this flight and possibly some others are nothing new, they take time in losses or reduction of profits; besides, Spain today does not generate confidence neither inside nor outside. The separatisms, the hard strikes, the street fires, the political swings, the attacks on the industrial cloth and its products, the tax rises and the entry of the communists into government with its many threats to big business, its patrimony and capital, have been there for years. All this, in its entirety, makes the air unbreathable and very harmful.  This bad example is beginning to bear other fruits; Ford in Valencia has already published an ERE of 350 workers and PSA is expected to do so shortly, Mercedes has announced total closure of production in the summer and Peugeot has informed today that it will facilitate, for the time being, early retirements of 15,000 workers in all its factories around the world.  This industry is dragging heavy losses that have increased during the COVID and after the massive relocation to China over the last 10 years. In Spain, it currently employs 66,000 people directly and some 500,000 indirectly and provides 8.6% of the GDP; of all the companies in the sector, only SEAT does research, the rest only assemble or produce parts, so its added value is minimal.

- In the metal industry, there are many more outstanding companies than Alcoa's aluminium factory in Lugo, which has announced an ERE of more than 500 people and will soon be followed by its sisters. Abengoa is already thinking of increasing its initiated restructuring. In other types of companies, the obligatory telematic actions for transactions and acts of payment, transfers and cash, have served to accelerate a process already underway for the closure and suppression of many banking offices. A similar thing will happen with businesses and offices facing the public as part of the civil service, insurance companies, consultancies, law firms and others, which have survived with teleworking and this may nullify the impulse to reopen so many offices with too many employees and cut them back even further. 

- The pandemic of closures in industry in general is spreading faster than COVID 19 and is in danger of increasing. Most of them were dragging and suffering great losses in recent years and the health pandemic has been the final straw that shows that the massive application of prolonged RTE's with large increases in losses - many of them unrecoverable - decreases of almost 100% in sales for so long and taking too long to relaunch them, has been lethal.  

- To make matters worse, last week the government surprised us by reaching an agreement with Bildu - the party of the ETA - to repeal the so-called Labour Reform in its entirety in exchange for a bizarre abstention in the vote to extend the State of Alert for the fifth time. This repeal, if carried out, will not be well received in the EU and is very likely to be one of the key points for negotiating the aid that may come from them. 

- The intervention of the armed forces in fighting and resolving the pandemic has been effective and more than necessary; NATO has made it clear that it is not prepared to defend Alliance territory against any attack or threat of nuclear, biological and chemical (NBC) action, and this pandemic has been the result of a textbook biological action. Faced with these problems, the EU will not only have to invest in what has been recognised as a strategic industry, create stocks of protective material and improve its health response capabilities; it will also have to start thinking about creating NBC units of sufficient entity and capacity to act massively in similar cases, which will greatly increase security and defence expenditure or delay other programmes that are in the pipeline.

As a conclusion and final summary, it can be said that the economic crisis, even before the closure of the health system, is beginning to claim too many victims, it will be very difficult to comply with the wishes of a government that did not have enough sight, nor the necessary haste to stop the pandemic; from those powders come these great muds that will not be as light as they were sold to us and they continue to sell knowing that the thing was and will be very hard and for a long time.

The changes in the ways of working, the multi-million dollar losses, the teleworking and everything based on computers will drag many employees to a safe unemployment and a complete business and personal reconversion which will lead many people to their downfall for not being up to it or not knowing how to manage in such environments. The large amount of aid from the Union, if it arrives, in what amount and in what period of time; will necessarily come conditioned, directed, marked and scheduled in a way still to be clarified, which will force significant internal reforms, even if they are not wanted. And even if a large proportion of them were free, they will not be enough to achieve all that the government wants to cover and achieve.

When the manna runs out, there will be a map of desolation and uncertainty that will almost certainly lead to the fall of a government because it was not able to fight this crisis either because it did not want to see it, to create many expectations that are difficult to fulfil, numerous and long lines of hunger, overspending and trying to solve the problem with the fallacious communist resource of blaming others, giving a series of alms instead of jobs, raising taxes on the rich and on everyone who moves; because the cow is already almost out of milk and there won't be enough in the udders to pay for such disproportionate administration and so much subsidy and royalty.