The main enemy of economic stability is uncertainty. That evil that has haunted us for two years. And we must recognize that it is not going to get better, but the other way around. The news of the Russian invasion of Ukraine is a cocktail that increases uncertainty exponentially. We are not clear about what to do because there are too many factors involved, too much noise and not enough relevant information.
For example, it has been published in the Washington Post that Russia has asked China for military help, and that China might be thinking about it. That news has already been answered in the media: if it happened, there would be economic consequences. And, of course, China’s counter-responses have also been analyzed. Conclusion: there would be an escalation of economic measures that, without a doubt, would affect those of us who are dependent on both countries. Namely, Europe loses.
That is one of the clouds that stain the news horizon right now. But there is more. Where will Ukraine’s border with Russia be when this is over? What territorial pact will Putin accept? What will happen if Putin offers an end to the war with territorial cessions by Ukraine and Zelensky does not accept? Will the European Union force him to accept in order to avoid world war and the economic consequences of the conflict?
what yes What we know is that the European Union is facing a demand shock due to the restriction in the oil and gas markets, the impact on the economic confidence of investors, a domino effect on agricultural supplies and the raw materials market, and a possible fragmentation of the global economy due to the use as a throwing weapon of energy interdependence.
The economic policies of the European Union must adapt to this new situation. The energy problem but also the reception of refugees and defense policy. Do we need a stronger defense policy? All these points directly affect the budget of the European Union between 1.1 and 4% of GDP, depending on Jean Pisani Ferry for Bruegel. That in aggregate terms. How much does Spain get?
What will happen if Putin offers an end to the war with territorial cessions by Ukraine and Zelensky does not accept?
In these circumstances, it is normal to release all kinds of initiatives, surely well-intentioned, about what the possible solutions might be. Because there are urgent issues that require action now, and at the same time, more far-reaching issues that involve strategic considerations and collegiate decisions between all the European and Western partners. A challenge.
However, among these possible solutions, there are some that have already been tested and do not work, are harmful and create added problems that are difficult to solve. For example, him wage and price control.
Franco was one of the rulers who resorted to price control, during the period of autarky that lengthened the post-war period and poverty in Spain. What good is more necessary than bread in those moments? So the dictator set a maximum price for wheat with the very good intention that there would be bread for everyone.
Farmers could not produce at that price. So they uprooted the wheat and planted another cereal: oats, barley… One after another Franco set the price and the farmers “fled” from control, taking refuge in another cereal. Until the price control was generalized to all cereals and the shortage was unsustainable. The price controls distort the market and create shortages.
Franco was one of the rulers who resorted to price control, during the period of autarchy that prolonged the postwar period and poverty in Spain
Would the same thing happen in the electricity market? It is a much more complex market, which is already intervened. Not surprisingly, 70% of the price of energy is regulated. The “intervention” and complicity of power companies with politics, at least indirectly, is very evident when analyzing the list of former politicians placed as directors or executives in large corporations (including Antonio Miguel Carmona at Iberdrola).
Nobody talks about it. And yet, we analysts position ourselves blaming the Government that does not lower the part of the rate that corresponds to taxes, or to the electric companies that obtain obscene profits. The issue is much more complex because it is a system in which both win and we, consumers, lose.
The problem is that the price of energy is driving inflation into double digits. In the United States, the inflation rate has been calculated according to the 1973 methodology and the result is that the level is already similar.
According to the article of Anne-Marie Knott For Forbes, it would be 10.76%, not far from the 11.1% of 1974. The economic consequences of the 1973 crisis for Europe were very harsh. The phenomenon known as stagflation, which is already on everyone’s lips, appears for the first time and a wave of pessimism hits all Western countries, after the rise of several decades of economic growth that seemed endless.
And, just as it happened then, but for other reasonsSpain catches us with the wrong foot. If then we had a dictatorial government softened by the Plan of 59, and an economy controlled by the terrible Development Plans, which distorted the signals of the markets, now we have an economy very weakened by the pandemic, but also by a Government that spends without control, for electoral reasons, and that sells smoke but does not have a solid economic strategy.
You have to remember that Franco died right between the crisis of 1973 and its echo in 1978, and the impact of the disappearance of wage and price controls did not come at the best time. Hence the Moncloa Pacts.
And now? What excuse does the social-communist government need to force the middle classes to pay the piper? Well, another dictator: Putin. Behind Putin’s shadow lies lousy economic management. Only ideological blindness can justify accepting Putin as the cause of our poor economic situation from which we face the challenges that will mark our future.
