“Political polarisation has an impact on the economy because it delays the approval of structural reforms and weakens them over time”. This is how the governor of the Bank of Spain, Pablo Hernández de Cos, expressed his concern about the handling of the present of the crisis during the webinar “The response of Spain and Europe to the pandemic” held by the Esade Center for Economic Policy, EsadeEcPol. “The response so far has been sufficient to keep the capabilities of economic agents intact,” he explained, “but uncertainty and the safeguards that will remain in force for some time will affect consumer habits and investment and will cause structural damage”. “But every cloud has a silver lining, and the time has now come to speed up the reforms we have been considering for years”, he added during the conference, which also featured Koldo Echebarria, director general of Esade, Toni Roldán, director of EsadeEcPol, and Antonio García Pascual, visiting professor at Johns Hopkins SAIS.

The governor of the Bank of Spain believes that “this crisis has caused structural changes that we will have to adapt to, such as teleworking, which will completely alter consumer habits and everything related to commerce and productivity”. “On the other hand, the main adjustment mechanism after a crisis is employment and in the case of Spain, this entails an increase in temporary work. If this climbs higher it will have considerable impact on more than employment: it will affect the age when young people leave home and also the birth rate”, he added.

Economic and fiscal policies

As far as economic policy is concerned, Hernández de Cos acknowledged that the Spanish economy is prepared for the worst-case scenario. “We have done a lot but we are ready and willing to do more,” he said. As regards fiscal policy, he reiterated “the need for a robust taxation programme that is well-designed and clearly presented and can inspire credibility and encourage investment.”

Fiscal policy at the European level was one of the main concerns expressed by the governor of the Bank of Spain. “What matter most is the implementation of a European stabilisation mechanism which is, in addition to economic and monetary union, essential in order to cope with shocks like the one facing us now.” “It is crucial for questions of effectiveness and solidarity. We must not let this crisis become a financial crisis. The damage to the banking industry would worsen the situation”, he added.

Hernández de Cos also mentioned the need to pay particular attention to the most vulnerable companies. “We have reached this point with less borrowing than in the previous crisis – enabling our companies to deal with this crisis better,” he explained, “But, despite public support, some companies have had to borrow more and this, along with prospects of falling demand, may damage them seriously”. “We suggest allowing them to restructure their borrowing and issuing a new line of guarantees via the Instituto de Crédito Oficial (ICO)”, he said.