Today, not only Italy, but also Spain, is in danger of fitting in some other user with health problems in Europe.
Spain was not only one of the biggest hit by COVID-19 in Western Europe, but its tourism-dependent economy has been particularly vulnerable to the ravages of the pandemic.right way for some other circular of sovereign debt and banking crises.This does not bode well for the country, which is restoring a view of political stability at all times.
It would be a euphemism to say that Spain has been particularly affected by the pandemic.As one of the first European countries to be affected by COVID-19, Spain has had more than 358,000 infections, the number of infections in Western Europe.Now, a momentary wave of Barcelona-focused infections is threatening to send the country a momentary blockade and cause additional primary damage to its very important tourism sector.
The Spanish economy is one of the European economies most vulnerable to the pandemic, not only does its tourism sector account for up to 12% of its global economy, but it also has an economy governed by small and medium-sized enterprises and has the proportion of jobs in OECD countries that require physical contact or proximity to others.
Unsurprisingly, in this quarter this year, Spain experienced a quarterly drop in production of 18.5%, making it the worst-performing economy in the eurozone.This year the Spanish economy will most likely contract at least 14% by the OECD.It is also very likely that Spanish unemployment will achieve 25% until the end of the year.
Spain’s economic recession can only seriously damage the country’s public finances, which in turn will make it difficult for the economy to move while stagnant in the euro, and will also make it difficult for the country to get out of its public debt or from the unrest of the banking sector.
According to Cristina Herrero, Spain’s head of fiscal surveillance, the country went into recession with unbalanced public finances.Now, due to the deep economic recession, Spain’s budget deficit will rise by 11-14% of GDP in 2020 and between 7 and 9% of GDP in 2021.This is to raise questions about sustainability, public debt, its public debt-to-GDP ratio is expected to rise to 120% until the end of the year and remain on an upward trajectory thereafter.
Spain’s longer-term customers to revitalize its economy and get out of the debt challenge are marred by the fact that it is stagnant in the euro.Being in the euro prevents Spain from depreciating the exchange rate to offset the fiscal adjustment.means that if Spain tries to solve its public finance challenge through fiscal austerity, it would threaten to aggravate its economic crisis; however, if Spain does not shrink its budget deficit, it threatens a debt crisis by leaving its public debt at an ever-increasing level.Path.
The threat that the intensity of the economic crisis could cause a new wave of Spain banking crisis further tarnished Spain’s economic prospects, and could do so simply by pressuring families and businesses to fall further behind in their bank lending.The recession will be 3 times deeper than that experienced in the country, the Great Recession of 2008-2009 reinforces this possibility and neither will the fact that vital sectors of the Spanish economy, such as tourism, are affected by the crisis or that Spanish banks currently have the lowest point of capital in Europe.
One of the unfortunate consequences of the wonderful recession of 2008-2009 to fragment Spanish policy and exacerbate regional tensions.One might think that there is now a genuine threat that the even deeper economic recession that will remain in the pandemic will only worsen and already complicated political situation.
All this reinforces the urgency that Europe will help Spain if Spain is going to fall into some other cycle of sovereign debt crisis and the banking formula.The euro area can do this simply by moving more temporarily towards the formation of a fiscal and banking union.However, judging by the strong reluctance to date among northern eurozone members to move in this direction, I do not propose holding my breath while I hope this will happen.
Desmond Lachman is a resident of the American Enterprise Institute, formerly Deputy Director of the Policy Review and Development Department of the International Monetary Fund and Head of Emerging Market Economic Strategies at Salomon Smith Barney.John Kearns is a study assistant at the American Enterprise Institute.
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