Government plan to tackle consequences of war

Sánchez announces a €16bn shock plan to mitigate the impact of inflation

4 min
Spanish Prime Minister Pedro Sanchez on Monday.

MADRIDThe Spanish government will subsidise fuel for the whole population, who will now pay 20 cents less per litre. This will the star measure of the government's shock plan to counter the economic impact of the war in Ukraine, which will be passed tomorrow by the Council of Ministers. This President of the Spanish Government, Pedro Sánchez, made the announcement this Monday and also explained that the plan will include up to €6bn in direct and fiscal aid and €10bn in state-secured loans for companies most affected by the crisis.

The Spanish government has been working for days on this plan –which will ne in place until June 30– to counter the consequences the Russian invasion is having in Europe, particularly on energy and fuel prices, which registered historical records this last month. "They will be measures affecting all citizens in order to fairly distribute the costs of the war", said Sánchez in the inaugural speech of the Generating Opportunities conference, organised by Europa Press. At a time when the economy was beginning to recover from the economic shock derived from the coronavirus crisis, the Spanish President acknowledged that the goal is also to "preserve the path of growth".

The measure to subsidise fuel prices will be applied when consumers fill up at petrol stations. As in the case of the measure approved for the transport sector, the cost will be shared between the State (15 cents) and oil companies (5 cents). Up to now, some companies (Repsol and Cepsa) had already made a move by announcing a reduction of 10 cents per litre in the price of their fuel for professional customers and self-employed workers. "I would like to thank oil companies for their commitment to the country," said Sánchez.

Business, jobs and housing

In addition, the shock plan will also include measures in the areas of taxation and business support, housing and jobs. For businesses, the government has announced €6bn in direct aid – including the fuel rebate – and €10bn in state-secured loans, which Minister of Economy Nadia Calviño had already announced and will be directed at sectors most affected by the war. In addition, there will be a lengthening of the maturity of the loans currently held by the companies and self-employed workers most affected by the crisis derived from the war in Ukraine, as companies demanded.

By sectors, aid amounting to €362m will be earmarked for agriculture; €68m for the fishing sector and, finally, a specific package of €500m will be approved for large energy-consuming industry. The three activities are among those which have suffered the most from the consequences of the war, either because of the increase in the price of electricity and fuel, or of raw materials in the case of the primary sector, many of which are imported from Ukraine.

On the housing front, and at a time when the consumer price index is skyrocketing (in February, the CPI stood at 7.4%, the highest it's been in 33 years), the Sánchez government will allow the revaluation of prices to be decoupled from this indicator and a maximum increase of 2% will be allowed. The CPI is often used to update rents, and has been punishing the housing market for months. The main unions, CCOO and UGT, demanded this measure so as not to weaken families' purchasing power even further. However, it remains to be seen whether it will be a retroactive measure and force back any price hikes which have taken place in the past couple of months.

T the Ministry of Labour, the experience gained during the pandemic will be used to try to mitigate the impact of the war on companies and workers. The shock plan will include a temporary ban on objective dismissals for causes linked to the impact of the war, such as inflation. This measure was already approved during the worst months of the pandemic; in that case, however, it was objective dismissals for causes linked to covid were banned. In addition, the government wants temporary lay-offs (ERTE) to allow companies manoeuvring room to avoid permanent job losses.

As for the protection of the most vulnerable families, the Spanish government has announced a 15% increase in the minimum living income, as well as a reinforcement of the electricity voucher for the vulnerable, a measure that the Ministry of Ecological Transition had been studying for the past few days. Specifically, Sánchez's government calculates that the voucher can be extended to 600,000 vulnerable families and reach a total of 2 million people.

Energy measures await Brussels

However, Sánchez has anticipated that the Spanish and Portuguese governments are discussing measures to reduce the price of electricity in the Iberian peninsula. After the European Union stated that it would take into account Spain and Portugal's "special" situation due to their scarce interconnectivity with the continent, the two countries will now have to send their concrete proposals so that the EU may gives them a final approval. Sánchez has assured that he wants to send the document to the European Commission this week and it is expected that the measures will have a real impact on the electricity bill in "three or four weeks".

The two governments are considering putting a cap on the price of gas for combined cycle power plants. This means that energy companies will not be able to sell gas above this price and will be compensated to cover the difference with the real price of fuel. The limit, however, has not yet been decided, according to sources from the Ministry of Ecological Transition.

One of the formulae that Spain wants to consider is selling electricity to France at a normal price. The sale and purchase price of the day will be fixed without any limit, which will determine the type of energy that is exchanged. Afterwards, however, another price will be set for Spain and Portugal, taking into account the limit on the price of gas which will be decided. This will allow this technology, which is the most expensive, not to exorbitantly affect other kinds of energy, such as renewable energies, which are cheaper, and thus reduce the price of the electricity bill. However, the proposal will need Brussels' approval.