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Spain discusses basic income for the poorest

Stefanie Müller Madrid
April 12, 2020

Amid the debate about coronabonds, the Spanish government wants to push through long-term financial measures to help the poorest. The idea perturbs even economists in Spain, as Stefanie Müller reports from Madrid.

Image: picture-alliance/NurPhoto/X. Bonilla

Some people saw it coming, others felt that it had to come: A Spanish version of the German "Hartz IV" welfare payments for the long-term unemployed.

"The moment is not an opportune one," said Catalan economist Jose Maria Gay de Liebana. He understandsnorthern European countriesthat do not want to mutualize debt by means of joint loans, and also the criticism from the Netherlands that Spain has miscalculated over the past 10 years and wasted money.

"If we don't start making serious efforts to finally reduce our debt, we won't make progress as a society," he said.

Spain's state deficit is still officially at around 100% of GDP, with the country taking on new debts last year amounting to €33 billion ($36 billion). The Spanish economic think tank Funcas expects an additional €100 billion in debt this year because of the coronavirus crisis.

The debate about the Spanish "Hartz IV" was initiated by Consumer Affairs Minister Alberto Garzon, who brought up the topic in a radio interview several days ago, stressing that the welfare payments should go only to the worst-hit victims of the current crisis.

Spaniens Verbraucherschutzminister Alberto Garzon
Minister Alberto Garzon said there was a broad consensus for the securityImage: AFP

Read more: Spain goes from tourism hotspot to contagion hotbed

Informal economy and undocumented workers

All efforts to reduce Spain's debts have been in vain, even though the country carried out necessary reforms much better than many of its neighbors after the global economic crisis of 2008. Since then, corruption has been vigorously combated, with the Spanish media also playing a role.

But the big problem remains the informal economy: Landlords who take in rent off the books, as well as millions of undocumented workers and people who are only ostensibly self-employed, all contribute to reducing tax revenue.

In this way, an estimated 20% to 30% of the GDP is not registered with tax authorities. But in the current crisis it is precisely the undocumented workers without a contract who cannot apply for many kinds of state aid because they can't prove any loss of income.

Not only that, some 15% of people are still unemployed from before the coronavirus crisis.

Yes to crisis aid — but what kind and for whom?

The former Spanish investment banker and current vice president of the European Central Bank (ECB), Luis de Guindos, has, surprisingly, urged the introduction of a minimum income.

Madrid-based economy professor Javier Morillas called for clear rules if it is introduced, saying that all other forms of financial aid would have to be cut to keep administration work down.

Morillas, who lost his own mother to the coronavirus, has demanded that the government now focus its entire attention on supporting and activating the economy with its spending. "I don't want any ideological debates now. We all know that Pedro Sanchez' partner in government, the left-wing Unidos Podemos party, would like to introduce a universal basic income," he said.

Private initiatives in Spain

But with things as they stand at the moment, the planned measure looks for the time being like a kind of Spanish version of a basic unemployment benefit. According to newspaper reports, a monthly payment of around €440 ($481) is planned to cover basic needs, making it necessary for recipients to keep looking for work, because no allowances for children or housing would come on top of that amount, as is the case in Germany.

"This means Spain is just catching up. Countries like France and Germany have had basic support for the poorest and weakest in society for ages," argues Miguel Otero from the Madrid think tank Real Instituto Elcano. Spanish Labor Minister Yolanda Diaz  calculates that currently some 5 million of Spain's 47 million population could have a right to receive the aid.

Spain too late again

What annoys Fernando Fernandez, who teaches at the Spanish IE Business School, about Spain's attempts to fight for European financing, is the timing: "It is understandable that we don't make a good impression when we start launching long-term measures in the middle of the discussion about short-term coronavirus loans," he says, pointing to worldwide debt and the dangerous loop in which Spain is caught.

Spain has long been a country of low income, with the average monthly pre-tax wage being between €1,500 and €2,000. But the cost of living is not much lower than in Germany and France. "For many people, that is simply not enough to live on. The state can raise minimum wages, as Sanchez has already done. But €950 per month is still very little money, and if the economy doesn't recover, the state has to provide for the people who are left behind in the system," Otero believes.

Spanien | Gassigehen in Coronazeiten
The economic fallout from the coronavirus promises to be disastrous in SpainImage: Imago Images/ZUMA Wire/P. Freire

Alvaro Rodriguez, a 47-year-old single father and small businessman, himself badly affected by the lockdown measures, agrees with this. "But I have the impression that too many people here in Spain would abuse such measures," he says. Even before the crisis, Rodriguez barely managed to make ends meet with the revenue from his food truck business. "I get angry about people I know who could work and don't. I have no tolerance for people who cheat the system and tax evaders."

Lack of state money

A lot of money does indeed get frittered away in Spain, and there is no culture of saving on the part of businesses and households. According to newspaper reports, the costs for the basic social support scheme would be around €5.5 billion per year, which would drive the deficit up by 0.1%.

Otero, who knows Germany and Switzerland well, has no doubts about the fact that Spain needs to catch up with the north of Europe with regard to a basic social safety net. "For many months, we won't have any normal tourism in our country, which usually has 84 million foreign holidaymakers a year. We'll be lucky if 8 million come this year," he says.

Sergi Martinez, a top Spanish chef who at the moment is cooking for hospitals and aged-care facilities because his two restaurants in Madrid and Catalonia are shut, is of the same opinion.

"What I am seeing these days in Spain in terms of human misery in some ways goes beyond what I saw during my 15 years as an architect in Africa," he says.

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