Fears of sec­ond lock­down and a frag­ile gov­ern­ment are rais­ing ques­tions over the Covid fight­back, writes Gra­ham Kee­ley in Madrid

The Daily Telegraph - Business - - Front Page -

Not since Spain plunged into a bloody civil war more than eight decades ago has the coun­try’s econ­omy suf­fered so badly as dur­ing the Covid pan­demic. When Gen­eral Fran­cisco Franco’s Na­tion­al­ists staged an up­ris­ing against the Repub­li­can gov­ern­ment, the coun­try’s econ­omy went into deep de­cline be­tween 1936 and 1939.

The same hap­pened when Spain im­posed one of the strictest lock­downs in Europe in March, in or­der to try to con­tain the epi­demic.

Af­ter emerg­ing from lock­down in June, a new surge from the virus saw the to­tal num­ber of coro­n­avirus cases rise to 359,082, the high­est fig­ure in Europe, ac­cord­ing to data re­leased on Aug 17.

More than 28,600 Spa­niards had lost their lives to Covid-19, health min­istry data showed, al­though the real death toll was closer to 45,000, ac­cord­ing to fig­ures from re­gional au­thor­i­ties and re­search bod­ies.

The dire cost of Spain’s eco­nomic hi­ber­na­tion was laid bare when gov­ern­ment data re­vealed the econ­omy shrank by 18.5pc be­tween April and June. Of­fi­cial records only go back to 1970, but es­ti­mates by eco­nomic his­to­rian Le­an­dro Pra­dos de la Es­co­sura show that in 1936 – the start of the Span­ish civil war – the econ­omy sank at an an­nual rate of 26.8pc, or 6.7pc each quar­ter.

Spain’s tourism-de­pen­dent econ­omy has been dev­as­tated. The coun­try, which re­lies on cash from hol­i­day­mak­ers for 12pc of its GDP and 13pc of jobs, ac­cord­ing to of­fi­cial data, has seen this cru­cial sec­tor dec­i­mated by the im­po­si­tion of quar­an­tines by Bri­tain and other na­tions.

Last year, 18m Bri­tons trav­elled to Spain, mak­ing up one in five of all tourists to the coun­try.

Over the first six months of this year, 10.8m for­eign tourists vis­ited Spain, nearly three quar­ters fewer than in the same pe­riod of 2019, ac­cord­ing to the coun­try’s Na­tional Statis­tics In­sti­tute (INE). Spain haem­or­rhaged busi­nesses and jobs when it would nor­mally be gain­ing them dur­ing the tourismhea­vy sum­mer months.

Be­tween Fe­bru­ary and June, 51,000 busi­nesses closed, com­pared to the same pe­riod in 2019, when 24,000 opened, ac­cord­ing to INE.

More than 1m peo­ple lost their jobs in the sec­ond quar­ter of the year, the worst fall in em­ployed work­ers on record, push­ing un­em­ploy­ment to 15.3pc. A sec­ond lock­down may de­liver a death knell for Spain’s econ­omy.

Al­fredo Mar­quez, an au­to­mo­tive con­sul­tant from Barcelona, was made re­dun­dant in July.

“I have been look­ing for a job but it is re­ally hard. This could not have hap­pened at a worse time,” he says.

The In­ter­na­tional Mone­tary Fund pre­dicts Span­ish GDP will de­crease by 12.8pc this year, mean­ing it will be worse hit than Bri­tain, where the eco­nomic slow­down is ex­pected to be 10.2pc. The rea­son is two-fold. Spain adopted a more se­vere lock­down ear­lier than Bri­tain, and it is more de­pen­dent on tourism.

With coro­n­avirus cases soar­ing, the fear is Spain may have to bring in a sec­ond lock­down to flat­ten the curve once more. How­ever, An­to­nio Gara­mendi, pres­i­dent of the Span­ish

‘We have po­lit­i­cal di­vides and the gov­ern­ment must pass the bud­get by Oc­to­ber or face an­other elec­tion’

Con­fed­er­a­tion of Busi­ness Or­gan­i­sa­tions, says this will be the death knell for the econ­omy.

“We are very wor­ried that we will have to go through what we had to go through in March and April. Peo­ple come first but the econ­omy will suf­fer bru­tally,” he says.

Spain’s gov­ern­ment has spent €8.1bn (£7.2bn) on a fur­lough scheme that has saved many work­ers from hard­ship. How­ever, tem­po­rary work­ers, like those in tourism, and small com­pa­nies have not been el­i­gi­ble for the pro­gramme and have in­stead had to rely on loan schemes.

Yolanda Díaz, Spain’s labour min­is­ter, has sig­nalled the fur­lough scheme will be ex­tended to the end of the year, but for busi­nesses this could spell headaches ahead. Kate Pre­ston, a

Bri­tish busi­ness­woman who runs eight restau­rants in Barcelona, said: “The fur­lough scheme has saved many com­pa­nies from go­ing bank­rupt im­me­di­ately.

“[How­ever] when it ends, I fore­cast car­nage be­cause com­pa­nies are obliged to keep all staff in their pre­vi­ous po­si­tions for a min­i­mum of six months or re­turn all fur­lough money for all work­ers. If your tak­ings are down 70-80pc, that is clearly im­pos­si­ble.”

Po­lit­i­cal in­fight­ing may slow Spain’s re­cov­ery even fur­ther.

Spain is ex­pected to re­ceive €140bn in Euro­pean Union funds to help shore up its econ­omy, and €61bn could be in grants rather than loans.

The frag­ile Left-wing coali­tion gov­ern­ment has drawn up a €150bn pub­lic spend­ing plan for the next two years and wants to avoid mak­ing cuts, as hap­pened dur­ing the 2008 fi­nan­cial cri­sis. How­ever, Spain’s po­larised po­lit­i­cal sys­tem means agree­ing how best to spend the cash has proved hard. Pe­dro Sanchez, the So­cial­ist prime min­is­ter, only came into power in Jan­uary af­ter strik­ing a deal to form a coali­tion with Pablo Igle­sias, leader of the far-Left Unidas Pode­mos (United We Can) party, and the gov­ern­ment must pass the bud­get for 2021 by Oc­to­ber.

Gar­ner­ing enough sup­port from a myr­iad of small par­ties is not straight­for­ward.

Pablo Casado, leader of the con­ser­va­tive Peo­ple’s Party, does not want to make cuts ei­ther but does not want EU money spent on “ide­o­log­i­cal projects”.

Faced with bal­loon­ing pub­lic debt that is push­ing 110pc of GDP, the ex­pec­ta­tion is that the gov­ern­ment will have to raise taxes.

Javier Díaz Giménez, an economist for IESE Busi­ness School, says: “More than the eco­nomics, it will be the pol­i­tics which de­cide our abil­ity to re­cover. We have a di­vided po­lit­i­cal scene and the gov­ern­ment must pass the bud­get by Oc­to­ber or we will have to have an­other elec­tion.” To­mor­row: the Nether­lands

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