The Governor of the Bank of Spain, Pablo Hernández de Cos, stressed this Thursday the need to improve productivity and reduce unemployment and the temporality to lower the levels of inequality in Spain, which will also suffer an “additional deterioration” as a consequence of the health crisis.
During the presentation of the report of the Elcano Royal Institute ‘Recovery or metamorphosis? Analysis and recommendations for the economic transformation plan of Spain ‘, Hernández de Cos has stated that Spain has entered the Covid-19 crisis with levels of inequality in wages and wealth “Clearly higher” than those observed before the 2008 financial crisis and that these will increase with the health crisis because the labor incomes most affected by it have been those of groups that were already in a more vulnerable situation: women, youth, low-level workers educational and precarious workers.
To reduce inequality, the Governor of the Bank of Spain sees it as essential to act on the labor market, increasing productivity and cutting unemployment and temporary employment. And at this point, and within the framework of the structural reforms that Spain needs to face, “now more than ever”, Hernández de Cos has advocated redesigning the contract system to eliminate “discontinuities” in the costs of dismissal between storms and fixed, since «this is clearly behind» the high level of temporary employment in Spain.
At the same time, and to decrease unemployment, the governor believes that must redesign active employment policies, using for example ‘big data’ techniques to improve the match between the needs of companies and unemployed workers.
Hernández de Cos has indicated that the measures to protect employment and household incomes adopted during the crisis, such as the Minimum Vital Income or the ERTE, will help reduce the negative effects of the crisis on the most vulnerable groups, but has insisted that reducing inequality in Spain requires adopting structural measures.
Thus, for the governor, the reforms, some of which he said should have been carried out before the health crisis, are now more relevant given the “Potential damage” and “structural” changes that the Covid-19 will cause to the Spanish economy, and that they add to the challenges that it already had before the arrival of the coronavirus.
Among these structural changes that the pandemic will bring to the economy, Hernández de Cos has emphasized two of them: the impact on globalization and on digitization. In the first case, he considers that “it is not ruled out” that the protectionist tendencies that many countries have presented during the crisis are “exacerbated”, and warned in this regard that this would affect Spain in a very negative way due to its greater openness to the outside world .
In the case of digitization, the governor has indicated that the health crisis has brought with it a greater use of teleworking and electronic commerce, two “structural” consequences that, although they do not have to have negative effects, “require a response.”
Hernández de Cos has also highlighted the need to face the crisis and the post pandemic period “With more Europe and global coordination”. In his opinion, joint action is “the most effective way” to cushion the effects of the crisis and boost recovery.
The governor has defended the European restructuring plan, but hopes it will be “the embryo of a future permanent stabilization mechanism.”
Likewise, he pointed out that the short-term responses to the crisis should be linked to other more structural ones, and in this sense he has advocated achieving a Banking Union and a complete union of the Capital Market.
Although a gradual recovery in economic activity is observed after the end of the state of alarm, Hernández de Cos recalled that the forecasts of the Bank of Spain point to a fall in GDP for the whole of 2020 by between 9% and 15%, with a decline in the second quarter, between 16% and 22%, compared to the contraction of 5.2% experienced in the first quarter.
Hernández de Cos has warned that the crisis will generate a high increase in public indebtedness, which causes a smaller margin of fiscal capacity to react to future future crises.
The high levels of indebtedness, he said, generate permanent financing needs and subject the Spanish economy to the continuous “scrutiny of the markets”Therefore, it is crucial to define a fiscal consolidation program that guarantees the sustainability of public accounts.