As I mentioned in October before Parliament and have reiterated later on several occasions, it is essential to avoid triggering a spiral of price and cost increases which would only exacerbate the already harmful effects of the current shock. Such a spiral can be avoided through an incomes agreement between firms and workers.4 I would now like to put forward some general principles which, I believe, should help to define it. First, this incomes agreement should involve distributing among firms and workers the diminished income in the national economy vis-à-vis the rest of the world that the recent cost increases entail. I must insist on this point again: the aim is to distribute costs. All the actors involved must sustain a loss. Workers will not be able to maintain their purchasing power in the short term, nor will firms be able to maintain their profit margins. Were workers to bear the full brunt of the adjustment, in the medium term firms would also suffer the consequences in the form of a sharp drop in demand. Conversely, if in the current situation we were to place the full burden of the adjustment on firms, many of them would be forced to close and many others would experience significant losses in competitiveness that would affect their future investment capacity. All of this would ultimately undermine job creation and our citizens’ well-being. Indeed, the latest information available suggests that this sharing of costs between workers and firms is already taking place.
We must not forget that these negative shocks are taking place while many of these vulnerable groups and firms have not yet fully recovered from the adverse effects of the health crisis. Selective fiscal policy support is also warranted by the need to minimise the impact on budgetary imbalances, which have increased very significantly during the crisis. It is thus important that the measures be temporary so as not to further increase the structural deficit. Moreover, the current high inflation also makes an argument for support to be selective and for avoiding an across-the-board fiscal impulse. Such an impulse could lead to an exacerbation of existing bottlenecks in the most stressed sectors that could eventually filter through to prices. It is also especially important to avoid the widespread use of automatic indexation clauses in the expenditure items that might further fuel the current inflationary process. This deindexation must be part of the incomes agreement to which I will refer later. It is also important for fiscal policy to provide certainty about the commitment to budgetary stability in the current context of heightened uncertainty, which could result, for example, in financial market tension. Thus, it is particularly necessary to design a fiscal consolidation programme that will allow the high government debt and budget deficit levels to be gradually reduced, to be implemented once the recovery has taken root. As I have already noted, this recovery may be affected by the conflict in Ukraine.