Published on Tuesday, December 27, 2022

Spain | The mistakes of the past

The crisis of 2022 has central banks striving to avoid the sins of the 1970s, fiscal policy resisting to avoid repeating the mistakes of 2009 and 2012, and the new international order trying to learn lessons from what happened 100 years ago.

Key points

  • Key points:
  • In economics, the topic of the year has been inflation. As was the case almost 50 years ago, the increase in prices stems from a decrease in the availability of energy supplies. The European Central Bank (ECB) has responded with the sharpest increase in interest rates seen in the EMU in a six-month period.
  • There is some evidence of what is to come: Spanish households have begun to accelerate the amortization of their existing mortgage loans; the demand for financing for home purchases is beginning to slow; and the balance of credit to companies continues to increase, but much less than the increase in income.
  • Furthermore, demand is growing in the short term spurred by liquidity needs in the face of the increase in the cost of production, but falling significantly in terms longer than one year. Moreover, in relation to GDP, private sector deleveraging persists and would have already returned to levels similar to those of 2019, before the use of ICO lines.
  • The risk here is that the ECB will do too much in too short a period of time, and that this will lead to a sharp and lasting recession. This alone should justify a thorough assessment at each meeting of the present and future effects of interest rate movements.
  • Fiscal policy is trying to limit the negative impact of price increases. European support for the policies implemented provides breathing space that was not available during the sovereign debt crisis. In any case, Europe is demanding that measures be targeted, avoiding expansionary policies that are contrary to environmental sustainability.

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