This paper assesses COVID-19 credit-support programmes in five of the largest European economies, and examines how countries have dealt with trade-offs raised by the programmes.
Global growth is expected to continue in 2019 and 2020, albeit at a slower pace. Forecasters are notoriously bad, however, at spotting macroeconomic turning points and the road ahead is hard to read. Potential obstacles abound.
The Minister of Finance from Spain discusses challenges ahead of the European Council in December
As tensions rise around Catalonia's independence movement, there are worries about the impact on the Spanish banking sector. Banks based in Catalonia account for around 14% of total assets. Some major institutions are already moving their headquarters to other parts of Spain. However, most Spanish banks have significant exposure to the Catalan market, and all could be caught up in the turmoil.
Growth in Spain again exceeded expectations this year, and bank deleveraging appears to have reached an end. Addressing non-performing loans was a precondition for recovery, and it required comprehensive financial sector reform.
The recently published in-depth evaluation of the International Monetary Fund (IMF)’s role in the euro area crisis highlights important contrasts in the area of financial services. The IMF provided highly valuable analysis and recommendations to the EU on its banking sector and related policies. In individual countries (leaving aside Cyprus and the second Greek programme, not covered by this evaluation), the financial-sector aspects of the IMF’s interventions were highly successful in Ireland and Spain, ambiguous in Greece, and a missed opportunity in Portugal.
Nicolas Véron reviews in-depth the role played by the IMF in understanding the financial-sector dynamics of the euro-area crisis. The IMF was the first public authority to acknowledge the role of the bank-sovereign vicious circle and to articulate a clear vision of banking union as an essential policy response. At national level, the IMF’s approach to the financial sector was appropriate and successful in Ireland and Spain, more limited in the Greek Stand-By Arrangement, and less compelling in Portugal.
What’s at stake: Spain is currently the EU country with the second highest level of unemployment, after Greece. The high and persistent level of unemployment and the appropriate labour market reforms are a major topic of discussion in Spain. We review arguments made in the blogosphere and by international organisations on the reasons for Spain’s stubbornly high unemployment, and various assessments of the labour market reforms of 2012.
Spain is among the countries still recovering from the financial crisis. While misjudged investments were part of the cause, these past mistakes could offer lessons for the European banking union.
Brazil’s economic crisis has much in common with Spain’s crisis from 2009 – 2012. The IMF and the global community must work together to ensure a stabilisation programme for Brazil before it is too late, as euro-area countries did with Spain. The credibility of policy adjustment is key.
Spain once again missed its deficit target in 2015 and it seems unlikely that 2016 will be any better. The central government has pointed to regional deficits as being the cause of the fiscal slippage. However, regional governments claim that their deficit is due to under-financing and overly strict deficit targets.
During the first decade of the twenty-first century, Spain experienced one of the largest waves of migration in European history, relative to its population. Shortly after signing the Treaty of Adherence to join the European Community in 1985, Spain went from being a sender to a receiver country.