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The European Commission presents the rescue fund What is it about? And how much is Spain’s turn?

May 29, 2020

The corona virus was particularly severe among Europeans. Especially with the southern countries. There have been many deaths, mainly because the population is older and this virus is not very friendly to our elders. However, this crisis is twofold. On the one hand, of course, we have the pandemic as such. An event that has challenged health systems around the world and has required extraordinary action. More than extraordinary, you could say that they turned everyday reality into a science fiction film. Yes, because this story comes from a film. On the other hand, of course, we have the economic crisis. And this crisis needs solutions. Good, The European Commission has made a proposal. Why is?

Well, here we are facing a historic economic crisis. The corona virus could not have come at a worse time because despite the fact that the economy was not entirely bad before it arrived, it was evident that economic growth was in a process of slowing down. But the worrying thing wasn’t that. The thing was, the stimuli don’t work. Despite the aggressiveness of the stimuli, the patient did not respond. There was a tense calm this year when many saw a storm coming. And suddenly, This virus came to put the cake. The glass was spilled with a drop, but the universe overdid and brought us a waterfall. The cessation of activities was an arrow in the heart.

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The European Commission presents the rescue fund What is it about? And how much is Spain’s turn?The European Commission presents the rescue fund What is it about? And how much is Spain’s turn?

Many criticize the high consumption of this capitalist society, but forget that the consumption of one is the income of the other. If spending is reduced, growth will slow down. Here is the problem with this crisis. Demand. The economic paralysis led to an end to spending. A closed business receives no income. So we’ve grown from a company of buyers to one of sellers. What does that mean? By being locked up in our homes, we are not producing enough, but we are accumulating losses. Whether we like it or not, this is a machine that cannot be stopped. This is not a capitalist conspiracy. Indeed, it is biology. If we don’t eat, we die. And to eat, you have to go out and look for food.

A demand crisis leads to a drop in prices on the financial markets and a deflationary spiral in the real economy. A company with no income cannot pay wages. A person without a job cannot consume much. And that reduces business income. Everything is a circular chain like an avalanche. When the first domain falls, it’s a matter of time before everything escalates.

In other words, we have a general crisis. And we urgently need to lift the falling demand. This can be achieved with large capital injections. And that is exactly the European recovery plan. The recovery fund is like the Marshall Plan that was implemented after World War II, however This time it is not done with foreign money, but with money from the Europeans themselves.

The European Commission proposes a fund of 750 billion euros. Two thirds for subsidies and a third part for loans. Southerners get more money than Sovereigns. Italy and Spain will benefit the most from this aid package. Spain receives € 140 billion (in subsidies and loans), which corresponds to 11% of its gross domestic product (GDP). The priority sectors will be tourism, trade and renewable energies.

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Ursula Von der Leyen, President of the Commission from Brussels, presented her draft, which despite the large and rounded figures is considered by some to be relatively conservative. Many expected a figure of almost one and a half billion. Not because more is better, but given the estimated annual decline in GDP, which is dramatic. Macroeconomic technocrats had calculated something larger than suggestedor. The Spanish central bank has made statements in this regard, for example. But politics is not just a question of law. You have to be right and strong. In other words, there is no point in proposing a “perfect” plan, but it is never approved. It is very difficult for all countries in the organization to reach consensus on a € 1.5 billion plan. But one in 750 billion is possible.

Here the frugal assumptions are the hard-to-crack bones: Sweden, Holland, Denmark, Austria and (to a lesser extent) Germany. While Southerners tend to go crazy spending, the frugal control the debauchery and order the rest. They are the teacher’s favorite boys. And those who tell the director everything. So there is always tension between Doña Florinda (north) and Don Ramón (south). It is very easy to hate the spoilers, but it has to be recognized that the discipline of rigor brings undeniable benefits.

The debate on the proposal will certainly be the ratio of subsidies to loans. The south will want more subsidies and the north will want more loans. The difference is obvious. Subsidies are a gift and loans are not. The north wants more controls and conditions. The south wants a blank check. I assume that the discussions will go this way. On one side of the ring there will be the cold and wealthy northerners, and on the other side there will be the happy (but wasteful) residents of the south. Basically, it’s the ant and cicada fable.

What is being announced here is a draft plan. The execution is still far away. I mean, it’s not for now. Although now is when it’s needed. But that’s democracy for you. The European Union is an organization with many members and everyone has to agree. And it is not easy. This takes time and this process will be very long and tedious. In this regard, the United States and the United Kingdom have a clear advantage.

The plan has yet to be approved and will not be implemented immediately. But surely we will see some effects very soon. I mean trust. In other words, the news is that Europe already has a plan and recovery is underway. The lack of trust has already started and although things are not very good there are hopes. The Spanish bond market will benefit from this new optimism. These positive winds will help the financial markets.

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Another beneficiary will be the euro. During this crisis, the euro lost ground against the dollar. The fact that Europeans grab the bull by the horns could increase the price of the euro. Here is the impact of these plans on the markets. Liquidity stimulates economic growth and fights the deflation crisis because it increases demand. This growth creates jobs and removes millions of people from aid programs. More consumption, more income, more growth. And all this prosperity will be reflected in the financial markets.

Here’s the relevance of all of this for Bitcoin. Not only can you possibly make a fortune with currency arbitrage in this dollar, euro, and bitcoin love triangle. I also think Bitcoin is a global asset that benefits from stimuli in the US, stimuli in Europe, and stimuli in the rest of the world. This money increases the markets and the price of things. Yes, Bitcoin is added to the list of beneficiaries.