The second wave of the virus is already hitting Europe with all its might. From Spain to the Czech Republic, the infections do not stop growing. The continent is facing its biggest recession in decades. And public finances are going to take a long time to recover. In the midst of this storm that threatens to last longer than expected – and which will not affect all countries equally – the International Monetary Fund (IMF) reminds European governments that this is not the time to abandon their expansionary policies. “They cannot afford to stop spending,” Alfred Kammer, the new head of the agency’s European department, said Wednesday from Washington.
The Fund already announced last week that this year it expects the euro area’s gross domestic product (GDP) to fall 8.3%. And among all the countries of the continent, Spain stands out due to the negative, with a drop of 12.8%. But things could have been even worse. Kammer and his team estimate that employment aid provided by European governments has helped maintain 54 million jobs. And without these emergency stimuli, European GDP would be on the verge of falling three to four points more than it already is going to do.
The fiscal aid approved as a result of the pandemic – intended, among other things, to maintain employment through mechanisms such as ERTEs or the liquidity of companies with ICO lines – have accounted for around 6.2% of the GDP of Europe’s advanced economies, according to calculations by the body headed by Kristalina Georgieva. “These programs have been very successful in limiting job destruction and have prevented a cascade of bankruptcies and bank closures,” says the IMF.
So the different governments have spent a lot, yes. But as much as their public accounts show holes, they have to continue to do so, the IMF technicians continue. “They can’t afford to stop,” Kammer said. There are no signs that this body, a symbol of austerity policies in recent decades, is going to return to its old ideas for now. The head of the European department asked European governments not to repeat the mistakes of the financial crisis of the past decade, a phrase that sounds like an implicit assumption of their own failures. In an unusual script twist, the body that used to represent economic orthodoxy is now calling for tax increases for high-income and the most profitable companies.
In the midst of a crisis that affects practically the entire planet, Spain stands out for its dire economic prospects for this year, its extremely high levels of debt and public deficit and its unemployment that will continue to grow. In the report on the global economy published last week, the Fund did not go into the reasons why GDP will fall more in Spain than in any other advanced economy.
But this Wednesday, in the presentation of the European report, Kammer explained the worst evolution of the Spanish economy due to its greater dependence on tourism, the high percentage of small and medium-sized companies in its productive fabric (more fragile in the face of the crisis), and the high weight of workers with temporary contracts (more likely to be laid off when the winds of recession blow).
In the decline forecasts announced for this year, the IMF says it has taken into account the economic effects of the second wave of the coronavirus. Its economists assure that a lot has been learned from the virus in these months, and that they trust governments to take measures that will less damage growth. But they admit that the situation is extremely uncertain. And they do not rule out that the new confinements are more aggressive than they now foresee, and that therefore they will have to revise their already very bad forecasts for this year and next.
