The Bank of Spain in front of the Government: this is how Sánchez's economic discourse challenges

• According to the Bank of Spain, binding pensions to the CPI as promised by Sánchez questions the viability of Social Security
• Projections: The Bank of Spain warns of the slowdown: growth forecast sinks and lowers job creation

"After an unprecedented financial crisis, the reputation of economic policy actors, of central banks in particular, has suffered enormous wear and tear," and "the real test, the one in which we play social prestige and credibility, it is because we are truly able to identify risks and vulnerabilities in time ».

Pablo Hernández de Cos already made clear in his inauguration speech as governor what the objectives of the Bank of Spain (BdE) would be under his mandate, but the bad reputation that drags the body and the fact that the broken promises are the usual norm in the political economic sphere of Spain, they suggested that these ambitious purposes would remain in that. And yet, more than a year after his entry, the new team that manages the Bank has not ceased in his company, even when these objectives have led him to hit the Government of Pedro Sánchez in a notorious way .

The examples are numerous and are not limited, much less, to accessory aspects. Moreover, the Bank of Spain has warned of the negative consequences that some of the most important electoral proposals of the socialist leader could have. The increase in the Minimum Interprofessional Salary (SMI) and the destruction of up to 125,000 jobs that, according to the agency, will lead, so disturbed the Socialist Executive that even the Secretary of State for Labor, Yolanda Valdeolivas, abandoned her discrete profile to demand the BdE to apologize for its alarmist warning and acknowledge its error. The regulator, despite being questioned on more than one occasion, did not want to enter into a direct discussion with the Executive but did leave a warning: in the summer of 2020 there will be enough data to make a rigorous analysis, and in the Bank there is certainty that the figures will prove them right.

The official argument that the economy was simply suffering a slight slowdown was also refuted by the Statistical Economics team led by Oscar Arce . The forcefulness of the arguments was such that, finally, the Minister of Economy, Nadia Calviño, was forced to acknowledge that the situation is more alarming than she had admitted so far. Or put another way: the Bank made the Government had no other way out and resigned to the slowdown entering the election campaign, something that did not sit well in Cuzco, headquarters of the Ministry of Economy.

And of course, the Executive also did not like the agency to warn of the risks of linking pensions to the CPI. Carrying out such a measure, he said, would call into question the "financial viability" of the Social Security system as it would generate a huge expense. Specifically, and according to their estimates, indexation would trigger spending by up to an additional 24,000 million in the next eleven years alone. The figure would reach 36,000 million in 2050.

In this case, the warning goes even further than in the previous ones; Not surprisingly, the link between pensions and the cost of living is one of the great commitments that Sánchez always poses. Moreover, the first measure of the electoral program of the PSOE says the following: « Protected pensions every year and forever ». To fulfill this, the acting president guarantees that in December «2020 pensions will be updated in accordance with the real CPI», without at any time offering a solution to address the increase in spending. This is, just the opposite of what the Bank recommends.

The governor

The clashes, therefore, show an important renovation within the Bank of Spain that begins with the governor himself. The mandates of Luis María Linde and, above all, that of Miguel Ángel Fernández Ordóñez were very negative in terms of credibility for the entity, and sources of the BdE themselves acknowledge that they were not up to par in moments of great importance in the recent history of Spain

Of Hernández de Cos, on the other hand, they say just the opposite. Appointed by the Government of Mariano Rajoy and subsequently endorsed by that of Sanchez, the regulator underscores the respect that has been gained with his interventions at the meetings of the European Central Bank (ECB), as well as the fact that he has been elected to preside the Basel committee or the technical committee of the bank risk supervisor. And, moreover, they point out the enormous difference that comes from attending high-level meetings, in which economists of great importance or senior positions take part, represented, for example, by Mafo , than doing it with Hernández de Cos at the head .

New policy

But the change, added from the Bank, goes further and is also visible in the daily activity of the body itself and in its communication. Past mandates were marked by a certain obscurantism, with very relevant reports on banking entities that were deliberately concealed and "errors" recognized by the regulator itself, being unable to anticipate the great recession. That is something that continues to weigh, and that we want to leave behind, giving the Bank greater transparency while encouraging the work of the agency's analysts by raising the pace of publication of works.

«When one has made a mistake in the past, the way to regain confidence is transparency. The Bank of Spain has had strong turbulence like Bankia, Banco Popular ... And the way out of these circumstances is by communicating more and better, ”explains Yago de la Cierva, professor at IESE. In addition, the professor of the business school of the University of Navarra points out that there has been a "change in the structure of power, the power is more horizontal, less vertical." Therefore, "the institutions not only have to report upwards, as it could be to the Government, but they have to report to the whole society", and therefore, he concludes, "we are in a context in which accountability It is essential, and that's where all transparency policies come from.

Communication as a tool

In this evolution, the role of the ECB and, to a lesser extent, of the United States Federal Reserve is being very important. « Communication policy in general has become another instrument of monetary policy in the hands of supervisors. That is unquestionable in Frankfurt and Washington, ”explains Juan Ignacio Sanz, professor of bank and stock market at Esade. This is what in English is called forward guidance , a tool that ECB President Mario Draghi has used so much during his tenure and that it is essential to know what central banks expect from the immediate future. "In some managerial programs, what we do is analyze the paragraphs and expressions [of the central bank documents], comparing them with previous notes and communications, to know what has changed from one month to another," explains Sanz to demonstrate the importance of this tool The Bank of Spain, of course, does not have this tool in the monetary field since this policy does not depend on the Spanish regulator. But Esade's professor points out that the agency does have an influence on fiscal matters, and there it is using communication as a control tool. And also, he concludes, " so that they are not accused again of what they were accused in the crisis ."

According to the criteria of The Trust Project

• Social Security
• Nadia Calviño

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Bank of Spain figures Spain 2050: up to 36,000 million more in pensions and 24,000 million in health and long-term care