Hernández de Cos defends that the incorporation of civil servants and pensioners to said pact “would make it much more powerful and effective”
MALAGA, Oct. 10 () –
The governor of the Bank of Spain, Pablo Hernández de Cos, has warned of “signs of exhaustion” in the income pact between the public and private sectors, which he defends updating so as not to enter into an inflationary spiral that results in a loss of competitiveness of the Spanish economy.
Thus, he has spoken of “a deterioration in the relationship.” In the case of wages, the safeguard clauses of collective agreements have increased, going from 17% in 2021 to 45% so far this year. In addition, it is expected that by 2023, 50% of collective agreements include this clause, “and we see that as a symptom of exhaustion,” he said.
To this has been added the deterioration of the well-being of citizens due to the increase in energy and food prices, which account for up to 85% of the origin of inflation, and which result in the final prices of products. Given this, he has stressed the need for an agreement between employers and workers to make an equitable distribution of that loss of well-being “to avoid the spiral of inflation.”
For this reason, during a conference at the University of Malaga (UMA), within the framework of the 50th anniversary of the Malaga academic institution, De Cos insisted on the need to approach an income pact in which the public sector is incorporated, which considered “very important”. In this aspect, he has defended that the incorporation of civil servants and pensioners to said pact “would make it much more powerful and effective”.
For the governor of the Bank of Spain, this would be in line with supporting the most vulnerable groups, which is what he believes budgetary policy should now focus on.
Thus, and after evaluating the expansionary fiscal policy –“obligatory and justified”– during the health crisis of the pandemic, in the inflationary crisis that Spain is now experiencing, budgetary policy “has to play a more limited role” and “focus on in supporting the most vulnerable groups”, such as in homes and companies that are suffering the most from the energy crisis; and do it temporarily so as not to increase the structural deficit, he has explained.
In parallel to this policy, he has advocated working on a multi-year fiscal consolidation plan to be executed once the economic effects of the pandemic and the war in Ukraine have been overcome. It should have a broad political consensus, and be accompanied by a review of the efficiency of public spending and the tax system and incorporate all levels of Public Administration.
With this, “greater certainty and confidence would be generated”, something that, for De Cos, is “particularly relevant” in his idea of normalizing monetary policy so that it is possible to maintain inflation at 2% in the medium term. In fact, he has detailed that the monetary actions have been based on eliminating purchase programs that became necessary with the pandemic but that “make no sense” in the face of inflation.
During his conference ‘The prospects for the Spanish economy in a context of high inflation and war in Europe’, De Cos addressed the current economic situation, conditioned by inflation, the war in Ukraine and the consequent economic slowdown.
In fact, he has spoken of a world inflationary episode “unprecedented in several decades” and “very persistent”, with inflation above 2% practically since 2010, and whose origin is fixed at 80-85% in the effects derived from the increased cost of energy and food. Thus, the origin of inflation in Spain essentially has a supply component, unlike the United States.
Before Russia’s invasion of Ukraine, he highlighted the “successes” in reducing dependence on Russian energy sources. In a context of complete shortages, he explained that the economic impact in Spain will derive from the damage caused to the eurozone countries that are most dependent on Russian energy, such as Germany or Italy.
These two aspects, which are external geopolitical factors, mean that macroeconomic forecasts are subject to “extraordinary uncertainty” because “how inflation evolves will depend on the disturbances that arrive” and that can cause second-round effects that, as has been assured, “they are not yet being produced”, but they would come to motivate this inflationary spiral.
For this reason, it has considered that it is time for the authorities to provide provisions and capital to the banking sector; in addition to facing the challenges from a greater European response. “More Europe is the right response. How we deal with shortages or how we deal with increased public spending to support the most vulnerable, all of this is more efficient if we do it more jointly.”
