José Manuel Corrales
Professor of Economics and Business at the Universidad Europea
We are closing a year with many heartaches, sufferings, shocks and war drums, and we are starting 2023 with cautious illusions conditioned by a sad reality, and many uncertainties and turbulences in the economic and social fields.
Eurostat has noted that inflation in the Eurozone has followed a progressive upward trend, which seems to have no end, although Spain and France are the two countries that have managed to control inflation better. The main components of inflationary dynamics throughout 2022 have been energy; food, alcoholic beverages and tobacco; non-energy industrial products and services.
The European Central Bank (ECB), as the regulator of monetary policy in the euro zone, has progressively raised interest rates, which will continue in 2023, but its orthodox recipes are not achieving good results, since the inflation suffered by Europe is not exclusively due to a monetary base, but rather to problems on the supply side and not so much on the demand side. Thus, the ECB, with its continuous interest rate hikes and its refusal to buy more debt, is making investment and consumption on credit more expensive, cooling the economy significantly, to such an extent that leading countries such as the United Kingdom and Germany are already entering into technical recession.
Inflation will take months to fall, causing an evident loss of purchasing power for families, which will be felt in households. In Spain, a “solidarity and income pact” is now needed to alleviate price rises and guarantee the recovery of consumers’ purchasing power in the medium term. This income pact must be accompanied by macroeconomic policies that reduce uncertainty, managing European funds in a more agile and efficient way, improving the competitiveness and productivity of companies, encouraging training with recruitment and lifelong learning, promoting equal opportunities and boosting social dialogue and collective bargaining.
The intensification of the Russian invasion of Ukraine is having important socioeconomic effects that are having an impact on all European countries due to the enormous mistrust generated and the progressive slowdown of the economy.
In the energy field, the Iberian exceptionality agreed with the European Commission has allowed gas prices to be capped, and has served to temporarily alleviate inflationary tensions and the escalation of energy prices in Spain. But this Iberian exceptionality has not yet been accompanied by the necessary reform of the electricity and energy market throughout Europe that must be undertaken by 2023.
Stagflation is no longer a ghostly specter but a stark reality, with a deterioration of the economic potential of the entire EU. The outlook for the Spanish economy is not favorable and there will not be a full recovery to pre-pandemic levels until at least 2024. The political climate has reached its highest level of tension and polarization, with clashes that will be reproduced in the coming months, since we are entering a new electoral cycle with regional, local and general elections in less than 12 months.
Therefore, it can be said that the year 2023 will be a period of significant difficulties, economic stagnation and threats that may have a negative impact on the quality of life and social welfare. In the coming months we will continue to suffer from energy price fluctuations, disruptions in the distribution chain and a serious and progressive food crisis throughout the world.
The European Union, which is experiencing a bloody war in its own heart, has not been able to become a decisive pole for building multipolar and peaceful international relations, and to promote a more solid economy that will foster ecological transition and social balances. The sanctions against Russia and the decisions taken by the EU have had an enormous economic cost, especially when it has insisted exclusively on a military path in Ukraine that leads to a dead end, devaluing its role in international relations and with no margin of autonomy vis-à-vis the United States.
We can see that the EU is today more dependent, that its economic growth is increasingly in the hands of Russia, China and the USA, and that its social welfare is severely conditioned by the economic, military and strategic strategies adopted outside our borders. Euroscepticism is growing and public opinion is beginning to embrace at the polls an extreme and reactionary populism such as that expressed by the government of Meloni and Salvini in Italy.
The key in Spain in the coming months will be to ensure that the economic slowdown does not spread to the labor market, causing the destruction of companies and jobs. To avoid this, we need more responsibility, social dialogue, solidarity and that the different social and economic agents “pitch in”. Unfortunately, it seems difficult to expect any positive encouragement that has a political and institutional origin. But these are not times for useless polarization, autarchy, economic protectionism, xenophobia and selfishness. It is in our hands to move forward or, on the contrary, to go backwards. Today, more than ever, we need to take steps forward in the welfare state, which is why we need more and better Europe.
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