January 23, 2021

The ECB bought 120,000 million of Spanish debt in 2020, the equivalent of the country’s net issuance


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The recovery of the euro zone economy git will increase intensity from the second quarter of 2021 and will be even greater in the case of Spain, according to the vice president of the European Central Bank (ECB), Luis de Guindos, who highlighted that the institution acquired in 2020 some 120,000 million in Spanish debt, a figure equivalent to the net issuance of Spain and the aid it will receive from the European Union fund in four years.

“Last year (the ECB) bought public debt from Spain for an amount close to 120,000 million euros,” said Guindos in an interview in the COPE chain, where he has underlined that this figure represents «practically all of the net issuance»Of the country and the equivalent« to what Spain is going to receive from the EU fund in four years ».

In this sense, the Vice-President of the ECB has indicated that with his intervention the entity seeks that inflation is approaching the objective of price stability and that financing conditions are adequate, especially for governments, since «the only thing that would be missing for the weaker economies is that , apart from the health and economic crisis there would be a debt crisis similar to 2011 and 2012 ».

In this way, the former Minister of Economy has pointed out the importance of the country taking advantage of these conditions in which practically it is being financed at zero cost. “You have to take advantage of it,” he said.

“Responsible fiscal policy currently implies spending more, incurring a public deficit”, defended Guindos, warning that in any case this excess spending should be directed towards issues related to the pandemic such as European ERTE, healthcare expenses or loan coverage with public guarantees.

“You have to spend more, but you have to spend correctly (…) The pandemic should not be taken advantage of to increase other types of expenses that have nothing to do with the pandemic,” he stressed, anticipating that starting in 2022 and 2023, “budget adjustment processes” will have to be carried out in countries with a more deteriorated position, since once the pandemic is over, the countries’ fiscal position will be looked at.

«The deficit that we are having is for exceptional circumstances, not for normal circumstances because it is not sustainable in the medium term“, has warned.

In this sense, questioned about the rise in the SMI, the central banker has indicated in general terms that the suitability of the measure depends on the specific circumstances, since in countries with full employment the increase is brought by the market, while in countries with high unemployment, much more care must be taken.

Most intense recovery in Spain

The Vice President of the ECB reiterated that the recovery will continue to be uneven and incomplete, plagued by uncertainties, to which is added the vaccination process, which is expected to take more speed and allow “a significant pull in the European economy”, with a “relatively strong” recovery in the second quarter, after January-March is expected to show slight growth or practically zero expansion after a fall of the order of 2% in the euro area in the fourth quarter of 2020.

“Our projection for the euro zone is a contraction of GDP in the fourth quarter of around 2% and a recovery in the first quarter,” said Guindos, who recalled the projections for Bank of Spain, which in its central scenario foresees a contraction for the country slightly below 1% between October and December 2020.

In the case of the Spanish economy, the vice president of the ECB has expressed his confidence that a recovery greater than the average of the euro zone will take place, after Spain has also suffered more intensely the effects of the crisis as a result of its structure economic, in which the tourism and catering are very important, with many “very small” companies, in addition to the fact that “its fiscal position in 2019 was not the best.”

«As of the second quarter, I believe that there should be a relatively intense recovery (in the euro area) and that has to positively affect Spain, which has to chigher than the euro zone average because we have also fallen more than the average “, has anticipated Guindos, who believes that, as community immunity is achieved and restrictions are lifted, it will be positive for the Spanish economy.

In this sense, the economist has pointed out the risk that vaccination will be delayed a lot, as well as other developments linked to the pandemic such as new variants of the virus, such as prmain threats to the planned central scenario which contemplates that in the second half of 2021 it is closer to normality.

“The downside risks are always linked to the evolution of the pandemic, although the central scenario is that the situation improves notably in the coming months,” he said, anticipating that the eurozone economy will return to precovid levels “by the end of 2022”, after two years of growth of around 4% “if everything goes according to plan.”

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