First, it was that world-renowned incubator of policy idiocy, California, that decided that the best way to fight stimulus-driven inflation was with more stimulus, announcing this summer that it would send out up to $1,050 in “inflation relief” checks in the process of course making inflation even worse.
Then, it was Italy’s turn to announce in August that it would also inject billions in fresh stimulus to – wait for it – fight inflation (the same inflation that was the result of billions in fresh stimulus during the covid pandemic and which has led to the worst global recession and bear market since Lehman).
And since stupidity is contagious, today Spain became the latest country to unveil some €10 billion ($10.65 billion) worth of measures to “ease the pain of inflation” in its third major package this year, bringing total aid to 45 billion euros since early 2022.
Spain, like all other European countries, has been grappling with a cost-of-living crisis exacerbated by the impact of the war in Ukraine on energy prices. The package includes a one-off bonus of 200 euros for about 4.2 million households with annual incomes up to 27,000 euros and the extension of tax cuts for energy bills into the first half of next year, Prime Minister Pedro Sanchez told reporters.
And since the bonus does nothing to alleviate the supply-driven constraints that have pushed the price of energy in Europe to the limit, all Spain – and every other European country – have done is boost the coffers of LNG/Oil exporters like Russia, Saudi Arabia and Qatar, and re-exporters such as China and India.
The package follows similar announcements in March and June that included direct aid, tax cuts, soft loans and rental controls.
Amusingly, Reuters says that Europe’s desperate measures coupled with an agreement negotiated with the European Union to place a limit on gas prices for electricity production ” have had some success” and cites that “inflation for the past 12 months slowed to 6.7% in November, the lowest rate in the 27-country EU bloc.” What Reuters should be saying is that having hiked rates to the highest level in almost two decades, the ECB has assured that Europe is facing a brutal recession – if not depression – all just to own Vladimir Putin.
And while slowing inflation has indeed been aided by a fall in electricity prices, which decreased by 22.4% from a year earlier in November, largely as a result of mass hoarding of natural gas this winter, a feat that Europe will find very difficult to repeat next year, food prices have continued to hit Spaniards’ wallets, climbing 15% during October and November from a year earlier.
And yes, injecting even more “inflation-fighting” stimmies means that food (and energy) prices will only go higher unless of course those stimmies are used to boost the supply of rare commodities, which they won’t be.
Meanwhile, to deflect attention from its latest stupidity (because in one year the magicians at the ECB will be so very confused why inflation remains so sticky and why it has to keep hiking even more as the recession transforms into a depression) the government said it will cut value added tax on essential foods such as bread, cheese, milk, fruit and vegetables and cereals to 0% from 4%, while pasta and cooking oils will have VAT slashed by half to 5%.
The funniest part: according to Pedro Sanchez, the billions in aid provided so far had helped Spain register strong economic growth this year, which he put at over 5%, above the government’s previous forecast of 4.4%, once again confirming that growth is nothing more than a measure of how much credit and/or liquidity enters the economy, either via monetary or fiscal channels; as for Spain’s real economy, it is slumping into a brutal recession along with the rest of Europe.