The receipt and destination of European funds continues to generate uncertainty as a result of the anticipated call for General Elections in terms of execution and timing. The Government has claimed a total of 94,000 million euros from Brussels through the Recovery, Transformation and Resilience Plan. Daniel Lacalle, chief economist at Tressis, maintains that growth in Spain is still very weak despite, precisely, the monetary injection that the funds represent Next Generation in the country’s economy. “No government has ever had a fiscal stimulus like the current one” considering a lax policy of the European Central Bank (ECB) for years and the money it will receive from Europe.
The Bank of Spain revised its forecasts for the national GDP (gross domestic product) at the beginning of the week, up to 2.3% this year, seven tenths above its estimates for the month of March and two tenths higher than what Economy contemplates , at 2.1%. In Lacalle’s opinion, on the other hand, “the funds are not working” in terms of their impact on the economy and they represent, in the medium term, “a leverage risk” simply because they will be equivalent to an increase in debt, to undertake these projects, at a financing cost that will be higher given the trend of rising interest rates in which the Eurozone is submerged. “They’re a clockmaking bomb to three years” that will fall on the next Executive who leaves the polls on July 23. “It’s like the queue at Starbucks, he comes behind, he pays”.
Tressis does not rule out further interest rate increases, including the one already anticipated by the European Central Bank in July and another one in September, which would drive the refinancing rate to levels of 4.25% this summer and, subsequently, to 4.5% Lacalle considers that it would make sense for the upward trend in the price of money to continue in the euro area, despite the fact that he understands that the impact on the real economy is becoming more moderate, basically because what he calls the “neutral rate barrier “, which is determined by underlying inflation, is still a long way off. At the end of May, it stood at 5.6% in the euro zone. “It is true that the inflationary pressure is easing, but we cannot forget that inflation is cumulative and that the core rate is rising,” says the expert.
The manager understands that the greatest impact of the escalation in the reference rates is being supported by the productive fabric, which will lead to a rise in delinquency in the future, and observes, like other public institutions, a drop in the granting of credit .
The situation that Christine Lagarde is facing at the head of the monetary authority is complex, after having “multiplied the money supply in circulation by five times” in the last period, mainly trying to combat the effects of the pandemic in the first quarter of 2020. The manager sees no recovery in sight and draws attention to the fact that the Eurozone has entered a technical recession, despite the collapse in the price of raw materials, the enormous investment represented by the funds Next Generation and an accommodative policy on the part of the ECB, which Tressis believes continues today, as opposed to what the market has defined as a discourse aggressive o hawkish.