Sánchez announces a 200-billion-euro plan. But unlike Macron, who promised employees “continuity in terms of purchasing power” with figures that are more than four times smaller, worker protection seems to hinge on the benefits of temporary dismissals. Even more surprisingly, the Spanish government claims that the package will cost it only $5 billion in the first month and as much in the second. How can that be? How much money do they really plan to spend, on whom and what will the workers get?
The lion’s share
To begin with, of the 200 billion from the headline, 117 billion are public, the rest is private capital that Sánchez hopes will be mobilized from the results of the plan. Birds of a feather flocking. And of those 117, the majority, 100 billion, are not direct subsidies or social expenses but a line of support for companies.
What is the government really doing? Channeling the small and medium business support program announced by the European Central Bank last week. Free money -no interest- or money that pays for itself -negative interest rate. All on a large scale, to the extent that it allows banks to fall below capital requirements. In Spain the ECB has calculated how far each bank can go out of balance.
But wouldn’t that threaten the state’s accounts by multiplying public debt? No. Guarantees are not really expenditure, but assets; they are a collection right for the state that will only be converted into expenditure when the guaranteed loans cannot be paid off. But there Sanchez is also playing games with the ECB, which has promised to buy up to 120 billion euros of such assets by the end of the year. In other words, the ECB will end up buying up a large part of this debt and simply cancelling it. The final cost to the state will be only a portion of the total defaults that occur. Even if the defaults were to multiply and the ECB were to get “tough'” – which is highly unlikely – and apply a high discount – which would already be quite relative given that rates are in the negative – public debt is unlikely to increase by more than 5 billion by the end of the crisis. But given that all European states are on the same track, there would be no reason to make the Spanish government’s financing cost worse than that of France, for example. Would this cause problems in the EU? No, it would not. The European “stability pact” with its deficit and debt limitations is about to be suspended after all.
Won’t it produce inflation? Actually, it shouldn’t. The impact of a sudden drop in production and employment is in itself deflationary: prices fall because families have less to spend and will try to save what they can – and the drop in oil prices accentuates this trend. Welcome back to a “Keynesian world”.
What else for businesses?
To sum up, of the 200 billion announced, 83 billion are pure expectations about the results of private capital and 100 billion are guarantees that in reality represent only a portion of the cost they generate in defaults. We have 17 billion left.
According to yesterday’s announcement, the state will give 100% exemption from contributions to companies that maintain employment, and 75% to the rest of the companies. And as an extra – marginal in the whole – subsidies for the purchase of computer equipment and teleworking systems and direct contributions to large phone operators and owners of communications infrastructure to extend Internet connectivity.
This is probably not the only or even the main thing that the “national champions” are going to get. Beyond the negative-rate credits, the 75% discount on contributions and the possibility of doing temporary layoffs at no cost, they are more than likely to receive special support the coming days. For the time being, as a political measure, they received yesterday from the president the guarantee that the purchase of listed companies by non-European funds and companies will be prevented.
What’s left for the workers?
After all of the above, there are still other destinations to be subtracted before reaching workers’ coverage. The obvious and most logical is the national health system. But here there are also the reductions: 3.8 billion were announced but in reality, there is only 1… the 2.8 billion that make the difference are transfers to the autonomies (regional autonomous governments) that were already in place before the epidemic. To this must be added the 600 million in basic benefits for those affected by the covid19 on which Sanchez insisted, half for the elderly and homeless, the rest for the sick and in situations of extreme vulnerability.
For the workers there are still… temporary layoffs. The good side: the time spent on unemployment will not be counted as spent. The bad side: if we do the calculations for a worker who earns the most common wage (17,482 euros per year), has a dependent child and has worked as a permanent employee for the last six years in the same company, that means he will be paid 654.8 euros net. If he has been with the company for less than six months, as a special measure he will be allowed to receive the minimum benefit: 430 euros. For the typical self-employed person, a precarious person, not a small entrepreneur, the government plan allows him to declare cessation of activity and, in general, if he is able to justify his temporary closure to the administration, to receive 425 euros. The minimum wage in Spain is 950 euros per month.
The government also introduces, following Italy and France, but only for the so-called “vulnerable groups”, a moratorium on the payment of mortgages and the prohibition for suppliers to cut off their basic supplies (water, electricity and gas). Given the variable nature of the definition of “vulnerable group”, it remains to be seen what its real scope will be. As far as rents are concerned, Sanchez called for “understanding” from landlords, which does not sound very solid either.
If we make a general assessment, it is not necessary to be very awake to realize that in reality the “shock plan” is a two-handed movement – one hand being the Spanish government and the other the European Central Bank – aimed at achieving the lowest possible devaluation of Spanish capital. To this end, it articulates a massive transfer of income from labor to capital that is “compensated” with minimum social coverage. So minimal that they put working families on the verge of bankruptcy if they have to pay a mortgage or rent.
In yesterday’s speech at noon, Sánchez, like a good “manager”, lavished everything that came his way for free: exaltation of everyone’s exemplarity, of the health workers, of the security forces, celebration of the daily applause, epic narratives in the face of the viral enemy, he even had time to pamper the artists… in short… sentimentality, “unity” and patriotism. But at night, when everyone had already started to do the math and it was time for the daily celebration of the confinement, the applause sounded weaker and shorter. Many wondered if they were not in fact applauding their own way to unemployment.