The Spanish economy and the COVID-19 crisis. Appearance before the Parliamentary Economic Affairs and Digital Transformation Committee – 18 May 2020

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 long-term 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.