18/07/2022

The crisis that came in from the cold

3 min
The crisis that came from the cold

Judging by the widespread yearning to go on holiday detectable in the air, we must be near the end of the world.

After a few dark years, covid is not as lethal, the economy and employment are growing, tourism is boiling at temperatures never seen before and household consumption is 13% above 2019 despite inflation of around 10%.

Although the economic data is good, as economist Oriol Aspachs wrote this week, "since we started using Google, we have never written the word recession on a web search". The dark storm clouds are already on the horizon and the strength of the shock will depend on some uncontrollable events. High inflation rates will continue at least until 2023; growth forecasts have been revised from the initial 3.8% to 2.4% for 2023, and the international situation is becoming more complicated. Uncertainty hovers over China's control of covid and, especially, the evolution of Russia's invasion of Ukraine. These two events have unpredictable global consequences. With the U.S. economy slowing down and Germany threatened with running out of gas to power industry this winter, carpe diem is in the air.

Economics or principles

The war is dragging on and the pulse with Putin is beginning to have direct consequences on the EU, beyond the reception of refugees. It has on Italy, where Draghi's position in favour of eliminating Russian energy dependence and the Kremlin's foreign currency inflows in advance of imports has clashed with part of the 5 Star Movement, which is against sending arms to Ukraine and sanctioning Russia. The government crisis in Italy makes the EU's ability to respond more fragile, because the dilemma between saving the economy and staying faithful to one's principles is not only Mario Draghi's. The winter will probably make many European governments nervous when they have to cut back on energy consumption, but the crisis has been brewing for years. The war has exacerbated access to traditional energy, but Europe was already in the midst of an energy sector transition without appropriate technology. Today, the EU as a whole is unable to implement the changes at the pace demanded, not by reality, but by political agreements on energy transition. Among the consequences of the war, we may soon find ourselves in a discussion on policies to react to the climate crisis that calls into question the need or the ability to fight against it.

Sánchez and survival

Spain is in a relatively good situation in terms of access to energy thanks to geographical location and gas reserves, but the winter will also be cold economically and Pedro Sánchez, the master of escapism, knows it. After the migratory and military pacts with NATO, Sánchez has been able to anticipate that international successes do not translate into votes in a situation of a deteriorating economy and has acted accordingly.

An expert in survival, the Spanish Prime Minister has taken advantage of the general policy debate to regain the political initiative and the agenda. He has dislodged the PP with a turn to the left because the tax increase on electricity and banks, without much concreteness, works well with the people when the increase in prices punishes purchasing power.

Strengthened in the international arena, Sánchez faces the last part of his term with a road map that passes through the approval of essential budgets, a foreseeable government reshuffle and a rearmament of the PSOE in the ideological sphere, to face off both the PP and Unidas Podemos.

The need for a new budget has provided the negotiating table with ERC with a last chance. The meeting after the Pegasus spying scandal, which staged the thaw, seems to have prepared some measures on "de-judicialisation" or what some call "the dismantling of the repressive architecture built in 2015".

Sánchez believes that with pardons and the reduction of pressure in Catalonia he has already completed his Catalan agenda, and within a month it will be possible to evaluate whether his will to move forward is real.

For the moment, the meeting between presidents was a "let's meet at the end of the month". The Catalan side needs results beyond the transfer of a weather station and Sánchez needs little noise and a new budget. Most Catalans, meanwhile, are worried about their economic future, but this will basically be after the vacations. Put in other words this week by a well-informed financial sector executive: "Let us all be drunk when Putin presses the button!"