After two months of war in Ukraine, A senior European leader confessed to me: “Now, what worries us most is political instability and the problem is not Spain, it is Italy. In Spain the Government will continue because Sánchez’s allies will do a thousand dirty tricks, but they will not let him fall. know what if there is an early election, the PP will win. It is your temporary life insurance. By contrast, in Italy there are elections next spring and the four parties in the Draghi government, from the extreme right to the left-wing populists, They need to mark their own profile. Draghi is starting to be a lame duck & rdquor ;.
My interlocutor has been right sooner than I thought. Draghi formed his national union government in early 2021 with the aim of inspiring confidence in Brussels and receive funds. It has succeeded, and Italy grew by more than 6% last year. Much of the country, as evidenced by the letter from more than 1,000 mayors, wanted the Draghi miracle to continue, but the right of Berlusconi and Salvini It has finished off the demolition started by progressive populism. The right wing believes that he will win the elections, anticipated for September 27, and Berlusconi is a friend of Putin. It has influenced?
What is indisputable is that the end of Draghi, a solvency anchor in the EU’s third largest economy, with a very high public debt of 150% of GDP (117% in Spain), it is terrible news. Europe faces four serious and overlapping dangers: inflation, concerns about the euro, recession and gas shortages.Inflation has run amok to 8% when the normal was 2%. For this reason, the ECB has been forced to raise interest rates by 0.5%, double what was announced two weeks ago. Already launch a new TPI program (purchase of debt, with conditions, of the countries that are attacked) to prevent the rise in interest rates from causing, as in 2012, that the risk premium of the debt of the southern countries distance itself too much from Germany and the euro could break. It is what Draghi then avoided from the ECB. Now, it is one thing to promise the TPI program and another to apply it.
The third problem is that the ECB should have raised rates, but European inflation is due more to the increase in the price of gas and other raw materials than to excess demand. Thus, the ECB has raised rates when the economy was already trending downward and the respected PMI index of the euro zone, which projects the future based on an extensive and accredited survey, it has fallen, for the first time since February 2021, below the 50 index, the border between expansion and recession.
Will the ECB thus damage the economy when it was already falling? Is Lagarde caught in a death trap? It could be, but I had no other choice because the euro was depreciating against the dollar (among other things because American types are higher), which implies the rise in the price of all imports.
But the fourth horseman is the most apocalyptic. Putin will not resort to nuclear weapons because it has a more powerful one. If the next winter cuts off the gas supply to Germany and other Central European countries, the price of gas will skyrocket even more and all of Europe will be left in the dark (it will go into a deep recession). At the moment, Putin is blackmailing, it does not completely cut off gas (it has partially reopened the Nord Stream 1 gas pipeline), but all of Europe is afraid that it will. It is logical, since citizens (and voters) they would not tolerate the coincidence of skyrocketing prices, a sharp drop in activity due to the stoppage of the gas-dependent industry, and the rationing of heating.
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That is why Brussels wants a plan to save 15% of gas that seems improvised and that many countries, like Spain, reject. Ok, the Commission’s plan lacks many things and must be discussed and revised. But, let’s be serious, if Putin cuts the gas – in the medium term it would also be deadly for him –, General Winter will cut off many heads.
A great businessman in the sector whispers to me that Europe can do without Russian gas, but only in two or three years. To face the General Winter of 2023, Sánchez’s new ‘politburo’ is not enough. Spain needs a certain entente of the big parties. But, after Italy, it seems even more impossible.