The perfect storm has suddenly arrived in the form of an unknown virus. Economic activity, trade and the stock market have fallen dramatically, unlike anything seen in decades. The economic crisis will crash through neighbourhoods and be V-shaped or U-shaped, depending on whether the cessation of activity lasts a few months or is prolonged over time. This will mainly depend on the success governments have in applying measures to prevent the mass closure of SMEs and dire consequences for the self-employed if the chain of payments between economic agents is broken.
Many “experts” today criticise Europe for doing nothing. If by Europe they mean the EU, do they know the EU’s budget? It was only €149 billion in 2019 (less than 1% of European GDP!). In the US, the federal government has a public expenditure budget equivalent to 20% of GDP, and powers in many areas that the states have always denied the EU in Europe: investment in infrastructure, bailouts due to natural disasters or financial crises... If by Europe they mean the European Central Bank, well they have done their job well again. The ECB took a only a matter of days to respond, announcing unlimited mass buying programmes for public and private debt, and the EU has also temporarily lifted the state’s public deficit limits. Europe has, then, been up to the task. Imagine the situation in Spain without Europe: the 2008 crisis could have put us in a scenario similar to Argentina – high annual inflation and double-digit interest rates, intense exchange rate depreciation, capital control and runs on banks. Without the ECB’s purchases, hardly anyone would buy Spanish debt on the global financial markets and the risk premium would be out of control.
In comparison to 2008, at least this crisis has not come from within the financial system, but from a forced cessation of activity caused by a pandemic. Another strength today is the valuable experience accumulated by central banks, governments, economists and academics about what worked and what did not in 2008. Catalonia emerged from the 2009 crisis by mainly growing towards European markets: in 2008 only one third of Catalan production was exported and two thirds sold on the Spanish market, while by 2018 the situation had been reversed. Catalonia saw growth from 3,000 to 8,500 multinationals between 2008 and 2019, and almost doubled exports and airport and port traffic. Catalonia, therefore, has benefited greatly from the “little bit of Europe” we have, in the form of markets for free movement and above all, the single currency and the ECB.
In northern countries, the 2008 crisis was short-lived due to the rapid and broad internal consensus that exists when there is a severe crisis. In southern Europe, however, the debt crisis of 2011-2013 further added to the 2008 financial crisis, which was recognised late and poorly managed in Spain.
Today we see how European “neoliberal governments”, as they disparagely say in Madrid, quickly install basic rates of pay, bail out SMEs and the self-employed, and offer massive tax deferrals. In Madrid, by contrast, the “most progressive government in history” is now proffering an immense bureaucratic spider’s web for businesses to access the “aid” that seems to be aimed at destroying many SMEs, a tailor-made solution to facilitate the rescue of the Ibex 35.