The economy is at stake in July

A view of Punta Ballena street in Magaluf.Roque Martínez

The flapping of a bat in Wuhan causes an economic hurricane in the western Mediterranean.

A gloomy air, half gloomy, runs through the spine of Magaluf, the epicenter of Majorcan mass tourism and

ground zero

of the crisis in Spain.

At the end of Punta Ballena street there is a huge pub, The Plaza, a supermarket, Malvinas, and a towering bar, The Temple, which used to attract hordes of hooligans with a lady waddling on the roof;

all three are closed tight.

In the first section of the road there is another tavern and then a tobacco shop, two tattoo shops, a hamburger joint, something similar to a jewelry store, an establishment that offers fried chicken, an ATM, three additional pubs and exactly nothing else.

Sun and beach, alcohol and drugs,

balconing

and other perversions aimed at thousands of British tourists have been part of the landscape of this town for decades.

With the exception that not a single tourist has been seen around here in months.

The blinds are down.

The covid exhibits its scars in all its rawness;

businessmen don't even know if there will be a tourist season.

“I would be hit with a song in the teeth if they assure me that we will be able to open in July;

another year would be a ruin, ”laments Toni Horrach, owner of a score of hotels, one of them in the heart of Magaluf.

That

ground zero

is not an easy metaphor: the Balearic GDP fell 27% in 2020, two and a half times more than the whole of Spain.

The Balearic and Spanish economies tell the same story, but everything is more baroque on the islands: the collapse is more pronounced due to the great weight of tourism (16 million arrivals in 2019 for a population that barely exceeds one million inhabitants).

That 27% in a single year lives up to the destruction capacity of the Great Depression in America for nearly a decade of Grapes of Wrath;

it is equivalent to the debacle that devastated Greece during a five-year euro crisis.

And from the anecdote to the category: beyond Magaluf and the Balearic differential fact, this is the chronicle of the second blow of Spain in a decade.

"The Spanish economy has a talent for maximizing the impact every time a major crisis appears," says economist Carlos Martínez Mongay: Spain was one of the countries hardest hit by the Great Recession and it is again, again, now.

Then the bursting of the housing bubble took away the banking, public finances and what was put in front of it, and later the austerity sponsored by Berlin and Brussels forced to make harsh adjustments after years of excesses.

This time there is no moral tale: there are no excesses.

It is a shock of non-economic origin, but of devastating effects: the weight of tourism and local services, the strong presence of SMEs and the structural imbalances that Spain has dragged on since the eighties explain a good part of this punishment;

André Sapir, from Bruegel, argues that the quality of governance also plays a key role.

Cuba, the Philippines and the Civil War

"There has never been a hard landing like this: it's scary," describes historian Adam Tooze to explain the necroeconomics of covid.

The coronavirus spread at full throttle, stressed health systems around the world and forced the establishment of measures typical of the Middle Ages: the health crisis caused the hibernation of the economy, which underwent an "induced coma" - happily definition of the economist Ángel Ubide— from which we have not finished waking up.

Spain adopted a hybrid model to live with the virus: a kind of yenka that consists of hardening or relaxing restrictive measures depending on the contagion.

But we danced that yenka badly: the result is mediocre at best.

The authorities wanted to save the summer and Christmas, and that left successive waves of infections.

"The balance sought between health and the economy has been harmful to health and harmful to the economy", graphically summarizes the former socialist minister Miguel Sebastián.

For months, Spain seemed like an announcement for a funeral parlor: there are about 90,000 more dead than in a normal year, according to the INE.

The economic figures are of the same tenor, although unemployment has not shot up like other times.

"The baggage that the Spanish economy brought for this setback was regular: GDP accumulated five years of growth but was entering a deceleration phase, and in that five years neither Mariano Rajoy nor Pedro Sánchez knew how to correct the structural imbalances, in particular the fiscal one" describes Ángel Talavera, from Oxford Economics.

In short, GDP fell 11% in 2020. "The economic policy response was adequate," judges Juan Pablo Riesgo, from Ernst & Young and former Secretary of State with the Rajoy government, "although with delays."

“The ERTE contained unemployment;

the ICO lines allowed the business sector to survive, and Europe did the rest: Brussels suspended fiscal rules and the ECB adopted ultra-expansive measures that have given governments room for maneuver, although Spain has used it less than other countries ”, he adds.

"These measures have worked but they were designed for a short crisis: that is why it is essential to give direct aid to companies if we do not want business mortality to skyrocket and Spain will not have an economic engine when recovery arrives," adds Jorge Sicilia, chief economist from BBVA.

That's the key: knowing when the hell the long-awaited recovery will arrive.

A month up or down can mean all or nothing, that companies go up or that they disappear;

that tourism takes something off the air or goes into red alert.

Before rubbing that crystal ball, a couple of facts to gauge the magnitude of the tragedy: the rate of decline in GDP is at the height of the Civil War, and fiscal policy measures have raised public debt to levels similar to the years after the loss of Cuba and the Philippines.

The temptation to have breakfast every morning with a new historical phenomenon is one of the evils of these times, but the truth is that the latest shocks are great.

2021 dual

2020 was marked by the pandemic, and 2021 is on the same path: the analysis houses consider the first semester lost;

the Government is less negative, but in part because in the years of lean cows it is assumed a professional optimism.

Growth should come from June, when a reasonable level of vaccination is reached (a blurred line that fluctuates between 50% and 70% of the population), and in 2022 the super rebound will arrive if all goes well: if the new strains do not cause another mess, if the vaccines work as they seem, if the companies endure the last arreón and if the authorities do not give them an orthodoxy grip as in 2010. In that last sentence there are more conditionals than in that poem by Kipling But there is no virus - or crisis - that lasts a hundred years.

A bridge and two architectural schools

The crux of the matter is how and when does the economy get to the moment when the engine starts again.

"If vaccination levels are high in June, the tourist season will be saved, but if they are delayed at the end of summer the economy will suffer a great deal: in those three months of radical uncertainty we are playing a lot," sums up Óscar Arce, chief economist of the Bank of Spain.

Radical uncertainty is the phrase that defines this era.

And the risks (or fears) related to the vaccine and the strains of the virus make looking for that frontier of the beginning of the recovery is like speaking to the fog.

“The reactivation is just around the corner, it is a matter of months.

But reducing that period as much as possible is vital to prevent companies from failing and for tourism.

Fiscal policy has to make one last effort to build a bridge and save the four, six, eight months that remain ”, summarizes Gonzalo García, from AFI.

To build that bridge there are two schools of architecture.

ECB, IMF, Bank of Spain, employers and unions demand direct aid to companies.

And even in a part of the Government this idea has traction: “The speed in the arrival of the recovery depends on the vaccine and the execution of EU funds, but also on aid to companies, which are over-indebted;

Hundreds of thousands of SMEs and freelancers run the risk of closing down, ”says Nacho Álvarez, Podemos economic strategist.

"Economy is dragging its feet again," criticizes Álvarez.

And the key to that decision is held by Vice President Nadia Calviño, in favor of facilitating debt restructurings (lengthening repayment terms or facilitating write-offs) and offering participative loans (a hybrid formula between capital contribution and credit, which allows stagger payments based on income), but at the same time favorable to leaving the autonomies, with little fiscal muscle at this time, direct aid.

"We are in time to build an effective bridge to reactivation, but we must build it with the appropriate materials, see which viable companies may have problems, what aid they have received and do what is essential to minimize the scar," say ministry sources.

Tale of two crises

That will be the key to the immediate future, but what is already clear is that the nature of this crisis is very different from the previous one.

And its effects will also be different.

Villacañas (Toledo) was a kind of

ground zero

of the Great Recession.

Specializing in the manufacture of doors, the real estate crash wiped out almost everything: only two floors remain standing from the dozen years of the boom.

Laura Aranda has just turned 40 and leaves one of them to eat.

He left school at 17: "There was a lot of employment, good wages, that's what everyone did."

With the crisis, he closed his company and worked in the hotel industry;

"Where you could".

He managed to return to a factory and now he is suspicious of the effects of the covid, which for the moment has not taken a second bill to his working life.

“It is the story of one or two generations that were not formed and were very exposed when the last crisis broke out.

Many people have had to leave, some have returned to study ... but the covid strikes again an area that has never finished raising its head, ”says Alberto Pérez, a teacher of adult training in the town.

10 years have passed, but the wounds of the Great Crisis are still visible in this area of ​​La Mancha.

Mallorca is another story: the historians Tomeu Canyelles and Gabriel Vives, authors of the very interesting

Magaluf, beyond the myth,

believe that once the virus has been subdued, things will remain the same: “We have been talking about model changes for 30 years, but that is hardly going to happen ”.

"European funds are an opportunity, but frankly, do not ask us for long lights now: the urgent thing is to save companies," says the hotelier Horrach.

The economist Carles Manera refers to "inertias difficult to change" due to the enormous success of the Balearic tourism model, but in turn adds that it is "essential" to rethink the strategy.

The Keynesian "long-term, all dead" takes on an ominous validity when a quarter of GDP volatilizes in a single year.

Economic managers discovered risk premiums in 2010: that role is now played by contagion rates.

“We constantly look at ours and those of Germany and the United Kingdom, because the immediate future of the islands depends on that.

If the crisis drags on, fasten your seat belts, but we are seeing some hopeful positive signs: we have to hold on to that ”, concludes Iago Negueruela,

Balearic

Minister

of Economy.

The virus of fear

Major crises bring old demons out of the closet: a report by the US Federal Reserve links the Spanish flu, which left 50 million dead, with the coming to power of Nazism.

This time there are two great risks for Spain: one purely economic;

another more socio-political.

Spain runs the risk of repeating - saving the distances - the sequence of 2010: a decade ago the Spanish crisis arrived with delayed effects, and the authorities refused to inject money into the banks, as all European countries did, until it was too much afternoon.

In 2012, Spain was left alone and was forced to ask for a ransom in exchange for a bumpy adjustment.

Is this time different?

Partly yes: economic policy has been adequate, and neither Brussels nor Frankfurt have had attacks of Germanic orthodoxy.

But there is a possibility that the government will cut corners with aid to companies and that causes problems.

And even if that does not happen, when the recovery arrives, Northern Europe will ask the ECB and Brussels for more harshness: at that time the most indebted economies will suffer again, “especially if we are not able to spend well the European funds or, especially , to make reforms ”, says Ramon Marimon, of the European University Institute.

The second risk, more political, is taking shape.

"Fear is something so natural that the strange thing is not having it," begins Manuel Cruz's last essay: the mess comes when that fear turns into anxiety and then into discomfort and ends up turned into fury.

From the Great Crisis arose the national populist ailments that took root in Washington, London, Brasilia, Budapest and in 52 seats of the Carrera de San Jerónimo.

This time it is too early to know what may appear, but here and there symptoms are detected, related to some worrying data: youth unemployment continues in Spain above a narcotic 40%, and inequality is at the level of the Baltic countries and Romania .

This report ends close to where it started, of that gloomy Magaluf: in the Convent dels Caputxins - in the center of Palma - 350 people are queuing to get a sandwich, a juice, some vegetables.

María, 36, Majorcan, confesses that she comes sporadically: "I work in a sports center, I have a small son and I can't make ends meet."

In Palma there have been no public disorders so far and only businessmen have manifested themselves - paradoxes of the crisis - but that hunger line has multiplied by three since the summer.

The most dangerous moments of a great crisis are, paradoxically, the first stages of recovery, according to the great economist Albert Hirschman: as when one of the lanes begins to circulate in a traffic jam and that unleashes the anger of the rest of the drivers.

Be careful with that.