“With sovereign debt approaching 100% of GDP, Spain has less fiscal and economic flexibility

than in 2008”, says Pedro Aznar, whilst Pedro Rey emphasises the “importance of good
expectation management and trustworthiness to ensure that the public behaves in a way that
helps mitigate the impact of this crisis”

The global health emergency caused by the coronavirus (COVID-19) pandemic together with
the state of alarm declared in Spain will have enormous consequences for this country’s
economy. Although it is difficult to forecast future growth in times of uncertainty about how
events will unfold as regards the pandemic, Spain is virtually guaranteed to slip into recession in
the second half of this year according to professors from the Esade department of economics,
finance and accounting,

One of the most decisive factors regarding the resilience of the Spanish economy the COVID-19
crisis is its dependence on tourism, one of the most important industries in terms of GDP and
one that will suffer most due to the impact on aggregate demand and employment. “At the end
of 2019, the tourism industry accounted for 2.3 million persons registered with the social
security system out of a total of 19 million in Spain”, pointed out Pedro Aznar, the director of the
bachelor’s degree in global governance, economics and public order at Esade. Another key
factor in the Spanish economy is “the predominance of SMEs, the weakest link in these
circumstances”, said this expert, before adding that aggregate supply would also be affected by
this crisis as supply chains begin to be hit.

“In comparison with the financial crash of 2008, Spain now has less monetary and fiscal
flexibility: its sovereign debt is now approaching 100% of national GDP as opposed to 40% in
2008”, Aznar warned. “A liquidity crisis is around the corner and it is not difficult to imagine that
it will soon become a solvency crisis with lots of companies entering the red. Similarly,
plummeting production will also mean that fewer workers are needed”, he pointed out. “In order
to safeguard jobs and help companies, the government has taken steps to make tax policies
more flexible, such as deferred payment of taxes, support for needy families and persons
affected by temporary redundancy schemes, etc, although these will have a negative impact on
tax revenue – a source of funding for these very policies”, he mentioned.

This expert then commented on the importance of quantitative easing by central banks, and the
finance industry then channelling it into the economy as a whole to enable it to redress payment
imbalances. Aznar then explained that, “In order to respond to the economic challenges of this
global health crisis, it is necessary to find a global, multilateral solution based on international
cooperation. The EU has already taken one step in this direction by relaxing deficit targets but
they could take more action and advance towards closer coordination as regards taxation and
economic policies.”