A succession of misfortunes in three lustrums

The 21st century has started very brave. In 2008, the Great Recession began, the biggest crisis since that Great Depression of the thirties of the 20th century that -attention to the data- led to the Second World War. They were years of tremendous wear. It had been, as they say, five minutes that we had overcome it when the covid appeared, a pandemic like the Spanish flu of 1918 that, just two years ago next week, forced half the planet into almost total confinement and severe restrictions to mobility, in addition to millions of deaths. Vaccines saved us and we were already on the road to recovery when Putin decided to invade Ukraine, a war that, at the moment, is causing an energy crisis similar to that of oil in 1973 and that anticipates the dreaded stagflation, that is, economic stagnation and high prices . It seems as if the 20th century, in terms of economic misfortunes, had revived an incipient reality in three decades of this century. Is it so?

economic historian Jordi Palafox considers that past events such as the Great Depression or the oil crisis “invite us to be cautious when considering the current economic situation as exceptionally serious”. It is, but this expert adds that what is happening is “a wake-up call against those who have tried to convince us that we were in a completely new era, without new diseases, crises, conflicts or changes in the global economy.” The researcher of the Valencian Institute of Economic Research (IVIE), Ernest Reighbelieves that the current phenomena are only comparable to the 1929 crisis, although he points out a substantial difference: “Now there are international cooperation mechanisms such as the EU or NATO, but also a highly globalized economy, which makes you more sensitive to what what happens all over the world.”

Fissures in the global economy

For his part, the director of the International Economy Observatory of the University of Valencia, Vicente Pallardo, does not hesitate to describe as “unheard of the global ‘shock’ of this decade and a half that has changed the world”. In his opinion, the period has served to test the strength of the global economy and has been found to have cracks “despite lifting many people out of poverty.” The Great Recession increased inequality and both the pandemic and the current war have put supply chains into question.

Ernest Reigh He adds that the war has drastically altered the panorama, because until this last crisis optimism was perfect, especially if one takes into account the radical difference in how the pandemic has been faced with respect to the Great Recession: with the banking system now healthy, an ECB that from the beginning has avoided the rise in the risk premiums of the States, the mutualization of public debt in Europe, public investment policies, the triumph of the protective State, as the erte prove, in the face of austerity… “All of this suggested that the recovery would be quick, but Ukraine has broken everything,” he says.

The sanctions against Russia and the loss of that market and the Ukrainian one, with their effect on energy and raw materials, are having a devastating effect on prices -and the consequent impoverishment of the population- and will have a negative impact on growth, that is, the aforementioned stagflation, which entails an added risk, which is none other than the perpetuation of inflation if it causes a rise in wages and, in turn, the rise in wages leads companies to raise prices for their customers. Come on, loop.

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Pallardo points out that from this period, despite the change in macroeconomic policies, such as monetary and fiscal policies in the EU, an impossible growth pattern persists: “We have grown only based on debt, instead of on productivity, and we have to the limit all over the world”. However, it is true that at the same time the perception has been accentuated that this growth must go hand in hand with respect for the environment “or there will be no planet”.

The war in Ukraine, after covid, is going to promote, in his opinion, two key elements of transformation. One of them is already underway and is the use in the EU and the US of public money to change the model and focus it on productivity. They are recovery plans that affect the environment or digital transformation. The other is the path towards “greater self-sufficiency in certain areas”, such as microprocessors, energy, life sciences or some agri-food products. All this, of course, provided that Putin do not cross the Iron Curtain: “If it happens, we are headed for catastrophe”.

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