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  • Coronavirus. The Bank of Spain already warns of a long crisis and requires politicians to rise to the "magnitude of the challenge"

The crisis arising from the coronavirus pandemic will not only be more severe than anticipated, but will also entail a long period of significant efforts. The Bank of Spain estimates that economic reconstruction will require a half-point "annual reduction in the structural deficit" of Gross Domestic Product (GDP) , which means an adjustment of some 6,000 million euros a year.

The governor of the supervisor, Pablo Hernández de Cos, did not specify what the duration of that effort will be during the appearance that took place yesterday in Congress. But he did argue that " adjustment is inevitable ", that "the challenge is many years old" and showed what the impact would be of maintaining that "constant fiscal effort" until beyond 2030 and from 2021, "once the pandemic has been controlled and its economic effects ».

The process, therefore, should take at least a decade . And at that time, and only in the best case scenario, the debt would still be around 90% of Gross Domestic Product (GDP), that is, far from the levels recommended by Brussels.

For all these reasons, Hernández de Cos went to the Congress of Deputies to demand that politicians who live up to the "magnitude of the challenge" be able to reach large agreements that will last for several legislatures. Because it is foreseeable, he said, that there will be alternations of power, but the "structural reforms" must remain. And the only way for that to happen is for the majority of the forces to agree to the essential actions, something that right now seems more complicated than ever given the high fragmentation and strong confrontation.

Aware of this, Hernández de Cos insisted on the need to start working on these State agreements now, and to sustain their extraordinary demand, he transferred to the Economy Commission that the economic context is deteriorating further if possible. Thus, it has already discarded the most moderate forecast of the three that the organization itself published last month and in which it estimated a collapse in Gross Domestic Product (GDP) of 6.6%. The virulence of the crisis has already pushed this estimate forward, and the new scenario is as follows: a drop in GDP of between 9.5% and 12.4%, followed by rebounds that, in none of the cases, will compensate for the fall. The unemployment rate will surely exceed 20% and could reach 22% and the deficit will shoot up by at least 9% while the debt will be between 115% and 122% of GDP.

Although everything, as the governor warned, could go even worse because "what has been confirmed in recent weeks is that the recovery will not be without difficulties, without ruling out more unfavorable scenarios than those currently considered." The short and even medium-term future is undoubtedly bleak.

The way to follow

“ We have missed an opportunity to reduce the structural deficit in the last five years . Not only has it not decreased, but it has increased when economic growth was buoyant, ”said Hernández de Cos, thus exposing successive governments. He also spoke of the need to "gain credibility" with a structural plan, and marked the way forward.

On the one hand, promoting growth since the increase in GDP itself helps to dilute the debt. On the other, an in-depth review of public spending and, in addition, a fiscal action that allows increasing resources. But not so much creating new tax figures as the Government intends, but improving the existing tools. At this point, the BdE has always been in favor of tightening VAT, taking more advantage of environmental rates and tackling the reduction in terms of collection caused by tax breaks and exemptions .

And very important: these measures, he said, must be applied together, go hand in hand, and prevent, for example, an increase in income from putting the review of spending in the background, since the debt and the deficit are going to be so bulky that only then can they be reduced.

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