The Spanish economy and the COVID-19 crisis. Appearance before the Parliamentary Economic Affairs and Digital Transformation Committee – 18 May 2020
Series: Occasional Papers. 2023.
Author: Pablo Hernández de Cos.
Full document
Abstract
The coronavirus pandemic has placed our economy in an unprecedented situation. The
adverse shock has been on an enormous scale and truly global in nature, and while it is
foreseeably temporary it has the potential to cause structural harm. Certain characteristics
of our economy – the sectoral specialisation of our productive system, the small average
size of firms and the high temporary employment ratio – make it more vulnerable than other
countries to this shock.
This situation initially calls for immediate and forceful economic policies. These should
be time-limited – until employment and economic activity regain momentum following the
shutdown imposed – and internationally coordinated. The aim is to alleviate the loss of
income of the households and firms affected by the crisis and to prevent a temporary shock
from causing persistent effects over time. And in this connection, fiscal policy is the most
suitable tool. Monetary policy should also operate actively to ensure appropriate financing
and liquidity conditions for economic agents. Micro- and macroprudential policies should
spur financial institutions to continue to see that lending reaches households and firms
and, in turn, they should preserve the system’s financial stability. Moreover, the crisis, as
it is global, requires an internationally coordinated response. At the European level, a joint
response is imperative, underpinned by a financial resources- and risk-sharing mechanism,
and a complete Banking Union.
Once the height of this crisis is behind us, economic policies should essentially tackle the
following challenges: to reduce the structural deficit and public debt, and to promote longterm growth. The strategy should rest on twin programmes: a medium-term budgetary
consolidation programme which, through a review of spending and of the tax structure
and capacity, enables health to be restored to our public finances; and a structural reforms
programme that raises economic growth capacity, with particular attention to enhancing
human capital and efficient R&D expenditure.