the clashes between the Government and the Bank of Spain

Luis Garcia LopezMadrid Updated:06/03/2022 17:01h

The Bank of Spain warned of the country's high deficit and debt levels in its Annual Report
the direction or lack of measures by the Executive of Pedro Sánchez have given way to reproaches from the institution led by Pablo Hernández de Cos, criticizing their ineffectiveness and the consequences they may have for the country's economy.

Pensions indexed to the CPI

The Government's proposal to guarantee retirees the
revaluation of their pensions with the CPI
it was met with skepticism in Europe. A measure that already led to a spiral of spending in Spain during the 90s that precipitated its repeal. The agreement that the Executive of Pedro Sánchez signed with social agents within the framework of the Toledo Pact caught the attention of the Bank of Spain from the outset, which warned of the implications it could have for the Spanish economy in its Annual Report.

The institution pointed out how this evolution of public spending on pensions represents one of the main threats to the future of public accounts due to the lack of measures to counteract this disbursement, which could deteriorate the health of public accounts to levels never seen before. Specifically, the forecasts of the Bank of Spain after the reform suggest that the public deficit could be structurally anchored at levels close to 6% of GDP and public debt could go up to 140% of GDP if no measures are taken from the Government .

The young rental voucher

The decision by the Government to include controls on housing rentals was also a source of disagreement on the part of the Bank of Spain, which included in its report as
the bonus of 250 euros for young people could affect the final price

“Empirical evidence suggests that, in a market with a relatively inelastic supply, there is a risk of a transfer of income from the public sector to the owners of rental housing, with price increases also suffered by tenants who they do not receive the subsidy» affirms the Annual Report.

The Bank of Spain was joined by real estate portals and political formations such as ERC and Más País in doubts about the housing law, pending passing the parliamentary procedures to hand over to the autonomous communities in the implementation of the measures

Discounts on fuel and the price of electricity

On the same day that the President of the Government, Pedro Sánchez, announced the extension of the fiscal package that includes the reduction of VAT on electricity from 21% to 10% and the discount of 20 cents per liter in the price of fuel, the Governor of the Bank of Spain, Pablo Hernández de Cos,
showed the institution's disagreement with the proposal
and urged to withdraw some fiscal aid that can suppose up to 12,000 million euros in the accounts of the year according to the estimates of the Ministry of Finance.

De Cos argued that the measures are too general in nature and do not respond to the impacts on businesses and families, especially those with lower income levels. The governor stressed the tension faced by the public coffers and the need to withdraw measures that do not meet the needs of the Spanish to seek a "more selective approach to aid."

The frustrated rent agreement

The inability to establish the Agreement for Employment and Collective Bargaining (AENC) between employers and unions, aimed at agreeing on wage increases, is another of the Bank of Spain's concerns.
The clause proposed by the unions
at the end of May to raise wages in line with inflation dynamited the negotiation, which will lead to conflicts in the next wage negotiations of the companies.

The parallel negotiation that was carried out between the Government and social agents for the income pact, which in addition to the salary increase included other measures such as regulating business profits, was also paralyzed despite the
insistence of the Bank of Spain to take measures in the face of the rise in inflation
. The decision of the Executive of Pedro Sánchez not to include pensioners in the pact, since it would frustrate the rise in pensions with the CPI, leaves the country exposed to possible second-round effects such as the rise in inflation as a consequence of the increase of pensions, as well as uncertainty due to the lack of a framework for companies to agree on wage increases with their employees.

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