The executive branch is working against the clock to finalize a new anti-crisis plan this Saturday that will manage to cushion the blow that inflation is taking on the economy. You may already be used to these races against you from the drills conducted during the pandemic, but the mechanism within the coalition government is not yet fully oiled. Differences between the two souls linger, and that means the search is still on for the right formula to tax energy companies – not just electricity companies – and to spread the negative effects of the crisis resulting from the war in Ukraine. “We must find the instrument, the most appropriate fiscal, financial and legal vehicle, to fairly distribute the negative effects of this crisis,” said the government’s first vice-president, Nadia Calviño, on Wednesday.
Second Vice President Yolanda Díaz, recapturing a well-known initiative from the United We Can wing, was the first to point to the need for energy companies to pay more taxes: “Big energy companies have to make an additional contribution. We propose to increase the type of companies by 10 points to raise between 1,500 million and 2,000 million euros,” he announced on his Twitter account on Monday. However, this request seems to have fallen on deaf ears. In fact, the first vice-president, Nadia Calviño, has said that she “ignored” these proposals, which were being “ignored” by the media during her participation in the seminar organized by the Association of Economic Information Journalists (APIE) at the International University Menendez Pelayo (UIMP) . In other words, it suggests that this issue has not yet reached the Council of Ministers.
After distancing himself from this initiative on behalf of the executive, Calviño has assured that a suitable formula is being sought to tax energy companies more and be able to cover the additional spending that will be approved in the next shock plan. In this way, there is agreement on the ultimate goal, but not on the way in which it is to be achieved. “[Esas propuestas] they do not correspond to the serious, responsible and technical work that is being done within the government. We are aware that the effects of war must be shared fairly. And of course that implies taxing the energy companies, as we have already done with the introduction of this tax or this additional fee for extraordinary profits of the electricity companies.” What has been completed and is being included in the shock plan is a reduction in VAT from 10% to 5%, as announced by President Pedro Sánchez in Congress.
All these social and environmental investments cannot be paid for by citizens at this difficult time.
The big energy companies have to make an additional contribution. We propose increasing the type of companies by 10 points to raise between €1,500m and €2,000m.
— Yolanda Diaz (@Yolanda_Diaz_) June 20, 2022
Calviño has stressed that the government’s vision is unique. Although this contrasts with the reaction she herself gave to Díaz’s initiative, as well as that which took place this Tuesday on television by Finance Minister María Jesús Montero. “Taxation is an issue that cannot always be settled through legislative decrees or budget projects. Depending on the final path we choose, we can use this vehicle or not. What is important is that it is as soon as possible and that it can be applied at the beginning of what I consider to be the most orderly financial year,” explained the head of the Treasury Department on the application of a new surcharge to large electricity companies.
The crisis resulting from the Russian invasion of Ukraine has upset the government’s economic plans. The specter of inflation has spread across Europe and Spain is among the countries suffering the most. In fact, this has been the executive branch’s biggest concern in months, hence the actions taken to try to cushion the upward spiral in the consumer price index (CPI). For now, the gains seem to be holding up somewhat (it was almost 10% and in May it closed a little below 9%), but it’s not finished turning it back to acceptable levels.
For this reason, this Wednesday, while attending the seminar held in Santander via videoconference, Calviño again insisted that the government work with a new scenario of higher inflation for an extended period. And he also assured that the anti-crisis plan, which will be approved this Saturday in an extraordinary Council of Ministers, was not accelerated by the electoral fiasco of the left parties in the elections to the Junta de Andalucía. “We took effective anti-war measures from the start, which we have adapted.”
No interest rate cap
Luis de Guindos, Vice-President of the ECB, also took part in the conference held in Santander via videoconference and stated that price increases in the euro area will not slow down this summer either. In fact, he has ensured that it will remain at a similar level as it is currently above 8%, at least until the end of the summer. In other words, there is no sign of an improvement in the inflation spiral in the short term: “If we face second-round effects, this will lead to inflation becoming larger and affecting more components of the CPI since the monetary policy response Be different”.
This situation puts the most pressure on the ECB to implement the forthcoming announced rate hike: a 25 basis point hike in July and another that all points to going even higher (by 50 points) in September. From there, the roadmap has yet to be written. “We will look at actual inflation developments and our forecasts and act accordingly. We don’t know where the guys can go, it will depend on the dates,” Guindos warned. That way there is no cap on the guys and the fight between them hawks Y pigeons within the Eurobank, at what level the so-called neutral rate will be set – the one that does not serve to expand the economy, but does not shrink it either.
In addition, the Vice President of the ECB stated that the program launched to prevent the debt fragmentation of the common countries should not affect the normalization of monetary policy or the fight against inflation. He even believes that this tool will increase the bank’s room for manoeuvre: “Having an anti-fragmentation tool frees up monetary policy to be more aggressive in tackling inflation.”
When asked about the conditionality of this tool, Guindos assured that it was not addressed at the moment. Something that influenced Calviño minutes later. Nonetheless, it seems clear that some conditions will be imposed, although they will be very far from those adopted in the Great Recession. “We have not yet discussed the specifics of this new program in the Governing Council, but we are in a very different environment than in 2012,” noted the ECB Vice-President.