Subsidizing gasoline consumption and other war losses

After the triumph of Brussels, with a return to the arena, a shock to reality. Delaying this no longer made sense and there was nothing to gain from expressing a manly face. The word “crisis” did not sink. Neither green twigs nor flowering shrubs. Nor should we wait for a change in the energy pricing system that is not yet complete and final approval by the European Commission. This applies not only to the price of electricity, no matter how high it is, but to the entire economy, which the war in Ukraine could lead to a recession in the United States and Europe.

On Monday, Pedro Sanchez announced a package of measures to try to mitigate the impact of the imminent crisis. He did not resist the temptation to recall the good positive economic data that existed before the war, although by this time they had been overtaken by Russian tanks. Nor to say that the government wants to send a “message of enthusiasm and hope to the public.” This type of message has been sent by the President for two years and he should already be aware that the effectiveness of the announcement has been significantly reduced. There is no collective therapy that compensates for the effect that will occur.

The government is putting 6,000 million in direct aid and 10,000 million more in ICO loans on the table. This is the first indicator that can have more instant favorable results. Increasing the minimum income and limiting the rent to 2% for three months fulfills the wishes of United We Can, which this time fully obeys Sanchez’s message. The measures “obviously have our stamp on us,” said Ione Bellara. Yolanda Dias confirmed that they are aiming for the welfare of the most vulnerable: “It will not be a general reduction in taxes, but it will target the groups, companies and people who need it most, especially in energy matters.”

Where measures do not take this factor into account is in the case of fuel subsidies. Issued to carriers, it applies to the entire population: 20 cents discount per liter of fuel, coming from 15 states. That is, everyone is subsidized by the owners of SUVs and any other car. Perfect for combating climate change.

This is an event that other European governments have already taken. This is in contrast to what was done during the first oil crisis in 1973. In the face of the dramatic rise in oil prices, steps have been taken to reduce fuel consumption. The message now is the opposite: we will try not to be so expensive as to continue betting on a private car.

The popular party wants to go even further. He has already demanded in Congress that the excessively reduced rate of VAT on fuel be reduced to 4%, as well as on staple foods. They should know the impact of these tax holidays on what is happening in Ukraine, but this is not the case. Solidarity with the Ukrainians has its limits.

“This policy is, of course, very popular,” wrote Javier Blass, an energy expert at Bloomberg. “But they are not only economic waste, but also harmful from a geopolitical point of view. The reduction in fuel taxes is in fact a subsidy in favor of Vladimir Putin and is detrimental to attempts to end the war in Ukraine. Think about it: If the cost of oil is more affordable, its consumption will increase. The higher the demand for oil, the higher its prices and the more money the Kremlin will make. “These extra oil dollars serve to kill more Ukrainians.”

Europe can not do in the short term without Russian oil and gas. Doing so will lead these countries into an unknown level of recession. But you need to reduce consumption and as soon as possible. Brent is already around $ 115 a barrel. That was 95 years ago two weeks ago. The International Energy Agency estimates that three million barrels a day are lacking in the summer to meet world demand. And we have not yet experienced all the energy consequences of sanctions against Russia, as Moscow can still continue to export to fulfill previously concluded contracts.

All of these assumptions do not affect PP. Nor did his new leader, Alberto Nunez Feijo, who carried out the strictest commandments of populism last Friday. “Is it possible to reduce taxes? Yes. Is it possible to balance accounts? Yes, is it possible to control the deficit? Yes, is it possible to invest more and save more by cutting taxes? “Also,” he said at one of the rallies before becoming party leader. And two boiled eggs, forgot to mention.

In short, it is possible to improve the economy in a brutal context without any sacrifice. Pay less taxes, including the affluent rich. More investment in social spending. Hospitals? Give me two NATO demands, with a sharp increase in military spending. There is a lot of money for tanks and planes. Deficit and debt control (which is 121% of GDP, according to Eurostat) to keep Brussels calm. Dear Voter: You will have everything you can imagine without any effort.

The whole West is terrified of what is coming and in PP they believe they have painless solutions that will allow us to navigate the storm without confusion. It should be a joint honor of Adam Smith and Antonio Eschotado.

Sanchez prefers a “balanced distribution of victims.” The same thing was said during the pandemic and the result was very much improved. At least admit it will be a sacrifice. The authors of the new economic theory, who argue that we will get out of this by paying less taxes and pinning the Ukrainian flag, do not think the same way, as if we are very worried.