The Bank of Spain sees urgent approval of a structural reform program

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Madrid, Aug 2 (EFE) .- The Governor of the Bank of Spain, Pablo Hernández de Cos, believes that the economy, after an unprecedented recession, is facing a gradual recovery, still incomplete and uneven, and advocates undertaking “urgent”, a reform program that addresses structural challenges.

In an article published this Sunday on the Bank of Spain website, the governor explains that, although the economy has entered a phase of gradual reactivation, minimizing the risk of new outbreaks is demanding that measures that condition activity in an unequal way be maintained.

Furthermore, uncertainty remains high, which negatively affects consumption and investment.

As a result, the level of activity continues to be significantly lower than that observed before the crisis, and “some persistent damage to the productive fabric could also begin to be seen soon and structural changes generated by the pandemic could be seen,” he warns.

In this scenario, economic policy must combine two objectives, which are to support the recovery – which advises avoiding a premature withdrawal of support measures – and to facilitate the adjustment of the economy to the scenario that will emerge after the pandemic.

Regarding monetary policy, he emphasizes that the European Central Bank (ECB) has reiterated the commitment to do whatever is necessary to support the economy and continues to be prepared to adjust instruments if necessary.

In this regard, he describes as satisfactory the agreement of the European Council to create the recovery fund, although now, he says, the challenge is to use these funds to sustainably support the restructuring of the productive fabric.

At the national level, it advocates periodically extending and recalibrating some of the measures already applied, which at this time will have to focus on the most affected groups of households and companies and favor the necessary structural adjustments.

Also, he says, the relocation of workers or the review of corporate restructuring and insolvency processes should be prioritized, to allow companies with financial difficulties to continue their activity when they are still viable.

“Many of the current challenges of the economy already existed before the outbreak of the pandemic, among which the low growth of productivity, the high rates of structural and temporary unemployment, and the need to address the challenges derived from the increase in inequality, aging and the transition to a more sustainable economy, “he says.

For the governor, the crisis has only made the resolution of these challenges “more urgent” and sees a reform program “urgent” to face them.

It advocates maintaining temporary and focused support for fiscal policy with a design that allows for the necessary structural adjustments, converting European funds into a fiscal impulse that accompanies and guides the recovery effort, and urgently implementing “an ambitious strategy , integral, permanent and evaluable of reforms that face the structural challenges of the economy “.

Finally, it asks to design a medium-term fiscal consolidation program, for its gradual implementation once the crisis is over.

“Our future well-being depends on an economic policy strategy that combines these principles. Therefore, its main lines should enjoy a high degree of consensus among the different political, economic and social agents, so that the bases on which it is based our growth is lasting, “he says.

De Cos warns that, after the pandemic, Spain will record the highest levels of public debt in many decades, and that the persistence of this indebtedness would reduce the margins of action to face adverse shocks, would expose the economy to a situation of vulnerability chronic and would hinder the ability to grow.

For this reason, “we must accept that the necessary fiscal expansion in the short term must come hand in hand with a plan to clean up public accounts in the medium term.”

(c) EFE Agency

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