Antonia Díaz (Jacarilla, Alicante, 1965) is a PhD in Economics from the University of Minnesota and a full professor at the Carlos III University of Madrid. Her research focuses on issues of income and wealth distribution with special emphasis on the housing market. She is also editor of the well-known economy blog “Nothing is free”
Díaz signs that he “wants to believe” that we still have time to stop a deep and lasting economic crisis. He believes that the emergency response that the Government has launched (two packages, one of 18,225 million and another of 200,000 million) is going in the right direction because of its forcefulness, but believes that the question now is to see how the measures are developed and a “collective commitment” (sharing risks, risk sharing).
What do you think of the 750,000 million economic stimulus program in the face of the coronavirus emergency that He launched at midnight Wednesday the ECB?
The program is welcome. It is especially important to say that the liquidity program will take into account the different severity of the emergency in each country. Not only that, but it is recognized that this crisis is not due to economic mismanagement. In fact, the Spanish Public Health comes to this emergency in part, due to the cuts that were made to face the Great Recession. Finally, these measures are not calming the financial markets at the moment. I think this indicates that the markets know very well the game they are playing and are still betting downward. It is time to watch them very carefully.
What do you think of the economic measures that the Spanish Government has approved to fight against the economic impact of the coronavirus? Are they in line with coordinating risk sharing (sharing risks and losses in solidarity by public and private agents to affect the productive fabric as little as possible) that it defends in this article?
The government package is in line with the measures that have been proposed in Germany or Italy. The point is that most of it involves a direct outlay by the State, which would need to be reserved for what corresponds. Alternatively, measures imposing a moratorium on mortgages do go in the direction of risk sharing. Also, measures to ensure the supply of electricity, water and gas to vulnerable families go in that direction.
We would like those measures to come with some additional control over the good faith of mortgage borrowers, and users of supplies, or other cases. It is important that these measures really help workers who need it. Another measure that we miss is clarifying when layoffs and bankruptcies proceed, which should always be avoided when the company is only going through this liquidity slump, the precise definition of which will depend a lot on how long the risk sharing: the “today for you, tomorrow for me.”
What would this idea of risk sharing consist of in order to avoid a further recession?
With all the precautions because we are up to date, we believe that companies should be encouraged to support each other, deferring loans, giving periods of lack of payments between them. The guarantee program that the Government has announced goes in that direction. It will have to be outlined to avoid the problem of adverse selection and / or moral hazard. That is, that the guarantees go to the companies, and self-employed who face a lack of liquidity for their payments but whose solvency can be observed.
Compared with those of countries like France, Germany or Italy, do we fall short, or are we on the right line?
In volume they are on the same line. The question is how the measures are developed and, above all, how their effectiveness is evaluated. Germany has better budgetary conditions than the rest, forcing us to spin much finer with the details and the evaluation of the measures.
The government trusts that private companies will somehow contribute 83,000 million euros, do you see it feasible?
We do not see it feasible without the bankruptcy of the financial system, which must verify private payments. Large companies should also play an important role in managing the payment moratorium of their clients while streamlining payment to their suppliers, since they have more liquidity and more collateral.
Finally, companies in sectors that are improving their results in the very short term could face their tax obligations more quickly.
Do you miss more tax measures? The Government says that it is not yet the time for the stimuli, but rather to stop the massive unemployment and the fall in production, that the stimuli (putting money in the taxpayer’s pocket) should come later.
Everything is going very fast, and we will see more measures. The important thing now was for the government to announce a clear and resounding commitment. A collective commitment is now required. You cannot do business with the disease.
So do you think another package will be needed soon? Freelancers and tenant associations complain of being left out.
Yes effectively; they too are affected and something should be done urgently. The point is that, in the case of these groups, it may be more difficult to verify “real needs”. With the employees who have their payrolls, their mortgages and their direct debits, it is easy for the bank to verify that they “tell the truth”, and to design mechanisms to refinance them without government intervention.
For freelancers and tenants it is more complicated, and the problem of perverse incentives may be greater.
How long will we have to maintain disruptive measures in the economy to curb contagion?
There, I dare not go beyond what the experts say. How long has China taken? With the greatest caution, since we do not handle the information that the authorities handle, I would say that Luis Puch (his co-author in some collaborations in Nada es Gratis) and I are in favor of maintaining the activity at a low profile, rather than A shock freeze on activity. But what we would like may simply not be possible.
What is the risk that the financial economy will worsen the general situation, looking for an immediate profit and speculating on the current situation? Is the ban on short operations enough?
The financial economy makes the economy very liquid, in a metaphorical and financial sense: by buying and selling securities we make capital gains and losses, without waiting to receive dividends from companies. Now we have a shock. We cannot produce. That is why expectations are fundamental, now, in financial valuations. I believe that it is not that short operations should be banned, but rather that the CNMV and the Bank of Spain must closely monitor transactions so that volatility is not added to the economy, and if appropriate, penalize Whoever propagates it for the duration of this emergency.
Is there any chance of not ending in a lasting economic crisis?
I want to believe yes.
Who will be the biggest losers in this shock? Will there be winners? Will there be an increase in inequality?
In the short term there are great redistributions of benefits: from hotels and restaurants to the food sector, etc. Many of these transfers will be reversed, the more the shorter the crisis lasts. But we fear that this crisis may bring many small and medium-sized companies and many self-employed people ahead.
One of the virtues of our plan risk sharing is that, in addition, it is an effective weapon against that inequality of which it speaks. The point is to spread the costs of this shock between borrowers and lenders. Lenders should not bear the full burden of shock when there is no bad faith.
One of the main aspects of this crisis is to show that we are highly interconnected and economically interdependent. Are we facing the end of globalization as we understand it up to now, or at least facing a transformation?
No, it is not the end of globalization but quite the opposite. When we say that we have an app to test possible patients and control their movements or when the neighbors help each other, they are using digital media. Digital communication has become widespread in homes and companies. This goes on. What we hope will change is the value that we assign to cooperation and public goods with respect to a situation before the Covid-19 crisis in which individualism was prevailing.
Regarding the world that international trade and the international movement of capital have interconnected, I would say that in order for the international connection to bear all its fruits, it is necessary to design international institutions that are effective and that help coordinate decisions. As for the losers of globalization, it is the responsibility of each government to invest in public goods, education and health, which ensure that each of us takes advantage of the best of globalization.