Months ago, the European Central Bank (ECB) it had been proposed to pave the way for the gradual rise in interest rates, and to accompany a recovery that was intuited with the end of the pandemic. The rising electricity prices he sounded the first alarm that it would not be as easy as expected. The year 2022 began with geopolitical tensions on several fronts and with the ghost of the inflation knocking on the door, and the burst of the war in Ukraine – and its economic effects beyond the battlefield – has finally convinced the body chaired by Christine Lagarde that a change of script was needed. Europe’s dependence on Russian gas and oil has made these raw materials more expensive, with consequences that European citizens have already noticed in their shopping basket. He price of gasoline and other raw materials are at an all-time high, companies have seen their energy bill skyrocket and fear – employers have warned Pimec i Foment– closures and losses of hundreds of thousands of jobs. There is little hope that the expensive oil scenario will dissipate, so in the face of inflation that was already at very high levels in February (5.8% in the euro area, and in Spain even higher: 7.6%) the ECB was obliged to act. Obliged in the literal sense of the word, as the central bank’s mandate is to control prices. It will not be easy.
Two big pressures seem to be stretching in opposite directions right now. On the one hand, the escalation of inflation; on the other hand, the fear of a recession due to the war in Ukraine. The ECB must walk like a tightrope walker so as not to cause imbalances in the economies of European countries. The manuals say that to contain inflation it is good to raise interest rates. The ECB has also kept them at 0% since 2016. But if the price of money goes up, credit will be more expensive, for individuals, for private companies and also for states when it comes to financing their public debt. Bad thing if there is no robust economic growth. So, before setting a date for the dreaded rate hike, Lagarde confirmed that the ECB will reduce the massive purchase of debt. It had already announced it in December, but now it has shortened the times: the tightening of the measures has accelerated. Thus, in the third quarter of this year we might be facing the withdrawal of monetary stimulus, which would be followed by a possible rise in interest rates.
Spain has cause for concern. It is one of the European countries that has benefited most from expansionist policy to cope with the high public spending resulting from the pandemic (the ertos, for example). And the frequent episodes of friction both within the coalition government and between it and the PP, the first opposition party – failing to see how Alberto Núñez Feijóo positions it from now on – might cause the Executive to face with political weakness this new economic stage. In a message to governments, Lagarde encouraged them to take fiscal action that would counteract the effects of ECB decisions. That is, more public spending. Employers are also calling for action, where appropriate, to limit the price of energy. Difficult situation in a country with one of the largest levels of public debt and deficit of the European Union.