"When the bank needed it, then society stepped up to help"

The Secretary of State for the Economy, Gonzalo García Andrés. / OSCAR CHAMORRO

He considers the pact to moderate wages and benefits "urgent", although companies are "tempted" to increase their margins

Jose Maria Waiter

On the same day and at the same time that the inflation data for July and growth for the second quarter are made public – one for lime and one for sand – Economy number two Gonzalo García Andrés (Madrid, 1973) analyzes for this newspaper the impact of the price escalation. He opposes it to the strong rise in GDP and anticipates how he sees the evolution of Spain after the summer in the face of threats of energy cuts and slowdown.

–Prices are up almost 11%. There seems to be no let up...

-We already anticipated that in the summer months inflation would remain high. In July of last year there was a fall of eight tenths as a result of the measures that the Government began to adopt in June, which leads to a base effect that makes inflation rise. Because prices have dropped two tenths this month compared to the previous one, but they have dropped less than last year; therefore, year-on-year inflation has risen. It is also true that there are already some signs that point to a drop starting in the fall and to deepen in the final part of the year.

He talks about signs. Which are?

–On the one hand, that fuel prices have fallen and, on the other, the international prices of raw materials. In recent weeks we are seeing that these key raw materials are already falling, given that the origin of this episode of inflation is precisely this generalized increase in the prices of raw materials and the effect that this has had on the costs of companies, energy, construction materials, fertilizers that are used to produce food... We are already seeing a moderation in these prices at the international level that will naturally translate into a moderation in prices at the domestic level.

–How long can Spain hold out with these runaway prices?

–The resilience and solidity of the economy is evidenced by the data we have seen this week, both on the evolution of GDP and employment. We are in a solid position to deal with this problem of inflation, which is the main one we have. For this reason, we must have confidence in the records that show that the business fabric is solid, solvent, hiring is taking place, investment is being made and, furthermore, families have jobs, salaries and stability. Above all so that we can face the coming quarters, which are complex. And that, furthermore, we are seeing from the forecasts of all the international organizations that it is going to mean lower growth and higher inflation for longer than we had anticipated. But Spain is in a strong position to deal with it.

– Quarters of crisis? Is that what we are facing?

–We have endured some much worse situation, such as the pandemic. And we have seen that if the appropriate measures are taken, we have been able to emerge faster, in a more balanced manner and, above all, with a more sustainable pattern, fairer and more focused on employment and the recovery of salary income. Inflation is a very difficult challenge, but we have the conditions, both due to economic policy and the responsibility of social agents, to be able to overcome this episode as well.

– Aren't you afraid that this growth situation will be diluted like a piece of sugar at the return of summer?

-No, it will not be diluted, of course. And I think we have incorporated that into the forecasts. It is logical that these GDP and employment growth rates can be moderated. Here the important thing is not so much that we grow a little more or less in the face of a situation that we do not control like the one we have at the moment, but that with the economic policy and the strengths of the Spanish economy we continue on that path of growth.

-Inflation has its origin in energy, but it has already been transferred to the entire shopping basket of citizens.

-What is happening now is that cost increases are being transferred to prices. With the widespread use of electricity and also fuel, this increase in costs has also been widespread. For this reason, it is now very important to distinguish between this effect, an increase in costs that comes from an exogenous increase in the prices of raw materials, from what could be second-round effects that are already linked to the reaction of economic agents to this increase in costs. For now we have no evidence that they are occurring. And it is very important that we manage to avoid them with an income agreement.

–When is this agreement?

–It is urgently necessary to close it at the turn of the summer to avoid these second-round effects and so that the drop that is going to take place in inflation is as fast and as sustainable as possible. That has to do with business margins and other capital income. Of course, I am sure that the unions also understand this situation with moderation in wage growth. And doing it, moreover, with a longer period is possible.

–But how can you act on business profits from a law?

–In a situation in which there are sectors in which demand has recovered very strongly, a commitment to stability of the margins of some companies is essential. The temptation they may have, especially after the very tough stage of the pandemic, is to expand them. But that would be a short-term and unsustainable decision. It is about looking a bit into the future and not trying to obtain the profits that can derive in some cases from the situation we are facing.

-The government forces have already presented the proposal to tax the income of banks and electricity companies. It was the moment?

–We trust that you understand the exceptional nature of the situation, the temporary nature of this contribution and that it is important that we all pitch in. In the case of banking and when it has needed it, I think that society as a whole, for stability, for how important banking activity is, has pitched in. Now what is asked of them is a contribution. It's fair and people understand it.

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