War in Ukraine: Josep Oliver: “Once the war is over, the reintegration of the Russian economy will take time” | Economy

Josep Oliver during his speech at the Press Association.
Josep Oliver during his speech at the Press Association.

The Russian invasion of Ukraine and its consequences in the form of sanctions are the latest shock economy of a century that has not exactly lacked them. The duration of the war seems to be a decisive factor in calculating its impact, but the end of hostilities will not mean an immediate return to normality, according to Josep Oliver, PhD in Economic Sciences from the Autonomous University of Barcelona. “Once the war is over, the reintegration of the Russian economy will take time”, he predicted during the presentation of the report at the Madrid Press Association of the Europe G thinktank, Financial imbalances in the Spanish economy 2013-2019, effects of COVID-19 and impact of the ECB intervention‘, of which he is the author.

The also professor of Applied Economics believes that the conflict will cause excessive inflation to continue, which increases the pressure on the European Central Bank to withdraw stimuli. Oliver believes that the intervention of the ECB has opened a window of opportunity for Spain to reform its productive structure and reduce its indebtedness, but time is running out. Amidst the growing pressure from the countries of central and northern Europe, Frankfurt’s support will not be eternal, and the effects of the end of that monetary anti-crisis umbrella deployed by the ECB may be disastrous for the most indebted countries. “When rates go up, risk premiums will start to crackle,” he says.

Oliver has stressed that the ECB is caught in the dilemma between high inflation and the risk that growth will stall due to the effects of the war in Ukraine. The conflicting interests of the countries of the south against those of central and northern Europe, which are less indebted, pose a complex set of balances for the body, which must set a uniform monetary policy for a group of countries with very different realities.

The study emphasizes that adding all the intervention in the Spanish economy, monetary policy operations have risen from 21% of GDP in 2015 to 72% in the summer of 2021, values ​​”indicative of the extraordinary dependence that stability has on financial institution of Spain from the activism of the ECB”. Another element of vulnerability for the Spanish economy is its excessive dependence on the services sector, higher than the European average, and which not only has not been corrected since the last financial crisis, but has increased.

The expert maintains that despite the deleveraging carried out between 2013 and 2019, the increases caused by the pandemic in private debt, and the unusual records of public debt after covid-19, have placed total public and private debt in the environment of 270% of GDP, values ​​only comparable to those of 2012, in the worst moments of the financial crisis. And those levels are even worse in some southern partners. “Seeing Italy with a public debt of 170% of GDP scares me, because it is not salvageable, it is going back to what we all discussed 10 years ago.”

Oliver highlights that the situation of families and the private sector is stronger now than in the last crisis, but public debt is “one of the greatest vulnerabilities” in Spain, so it must continue trying to reduce it, which is not simple in a context like the current one. “The accounts of the public sector are going to be affected worse by any compensatory policy, by the fall in income derived from the fact that the GDP is going to grow significantly less and by the increase in spending linked to stagflation via employment subsidies or spending to mitigate the social cost of the crisis. From the point of view of public finances, the immediate future is bad”, he predicts.

He knows in depth all the sides of the coin.


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