The pandemic and the need to ensure the coverage of essential needs for the majority of the population led developed states to invest massively in resources. With the start of the radical confinements, in the spring of 2020, they assumed the bulk of the bill that involved stopping economic activity and slowing the spread of the virus with more healthcare spending. And public debt soared.
In some areas, especially on the left, it was considered that that moment marked the beginning of a radical turn in the conception of the role of the State in the economy. That it definitively buried the neoliberal order that had dominated the economic management of the last decades and that would have sung the swan song with the austericide reaction to the great financial crisis of 2008.
This story, well documented, can be reviewed in Gary Gerstle’s book Auge y caída del orden neoliberal (Península), which, by the way, also ends the neoliberal order that the Republican, in the USA, and the conservative Margaret Thatcher, in the United Kingdom, they pushed in the early eighties and ended up supporting the Democrat Bill Clinton, in close association with Wall Street, in the nineties.
Where before there were cuts and social drama, now more spending was committed to ensure inclusion and avoid social crisis. A turn that would be a consequence of the lessons of the unfortunate experience of the hard years of austerity applied from 2008 until beyond 2012. The return of Roosevelt’s New Deal, a new order.
After this momentous turning point, the economy was subjected to new additional tests, such as the crisis of the supply chain and especially the rampant inflation still present and which generates new headaches due to the increase in the price of basic products and of debt, public and private. Here, once again, the States have maintained the same or a similar line, they have subsidized the consumption basket, petrol and the energy bill, and have also reduced consumption taxes, among other measures.
The current programs to boost activity, increase productivity and transition to a green economy would be of the same nature. Total coincidence between the EU, with its Next Generation European fund programs, and especially the USA, which under the presidency of Joe Biden has launched two major economic plans for investment and social protection that together exceed three trillion dollars.
An economic architecture that was originally based on three great pillars. The first, negative interest rates, which reduced the cost of debt to finance it to zero. Second, greater economic growth as a result of structural and productivity improvements that would entail massive investment in infrastructure and public services. And third, a policy of increasing public revenue thanks to growth and the selective increase in taxes.
The first and third pillars are starting to weaken. Each in their own way. The first, as a result of interest rate hikes by Jerome Powell’s Fed and Christine Lagarde’s ECB.
That of taxes, because of the political reaction that is beginning to arouse. Europe is a sensitive area for this type of situation. The dance has already begun at the heart of the Eurozone institutions. Germany, and a large group of northern countries, has opened fire and demanded a return to the policy of containing spending and reducing deficits. The south, with France at the head, and conveniently supported by Spain and Italy, propose to moderate the return to the past.
In all countries, the reaction against fiscal pressure is mobilizing many sectors of the middle classes who believe they have been robbed by their states, encouraged by platforms from the populist far-right to the traditional right, which include promises of cuts in government programs of taxes The other side of the coin of the recovery of the European fiscal rules.
The big doubt is how long Chancellor Olaf Scholz’s Germany will be able to combine the old orthodoxy, which seems to want to return, with the new world. Until now, Berlin had focused on promoting exports by containing wage costs, demand, at home. Also in those that, like Spain, had integrated the supply chains in their industry. But what is hinting at the horizon is a foreign demand that can evaporate due to the conflict with China, its main market, and the change in the product needs of the world economy. He will have to pay more attention, therefore, to his own internal demand, which will become vital.
While things are being clarified, in Spain, this battle has so far had its preferred ground of expression in the regional governments. As the PP controls them, first alone, now with Vox, property, inheritance and donation taxes, among others, are abolished. A siege on the communities that still hold them and that will end up being unsustainable. In the Catalan case, moreover, it will now be the neighboring Valencia that will face the tax haven, until now they were the great attraction of Madrid for the great assets.
Once the elections of 23-J are held, the debate will go up a few steps. If the new government is formed by Alberto Núñez Feijóo, this fiscal line will gain strength, in Spain, and in the position that the country will maintain in the European debate. It is true that budgetary policy in the EU is strongly influenced by the European Commission. But it is no less that this Commission, at the same time, is a reflection of the correlation of political forces between the different countries that are part of the EU.
