BEGIN THE BEGUINE

I can’t recall when my words last appeared in this inflight magazine … but that’s unimportant now. The really important thing is that we are back in touch again through here, sitting on a plane, flying and once again without face masks. It’s wonderful! It’s like starting all over again, Begin the beguine.

This was the English title of Volver a Empezar, the film directed by José Luis Garci that won an Oscar on 11 April 1983. It was the first time in history that a Spanish film had received the prestigious «Oscar for the Best Foreign Film» statue. We celebrate the 40th anniversary of the Academy Award this coming April, although the 2023 ceremony takes place in March.

When it first came out in Spain, the film drew stinging criticism. It was said to be «morose and empty» and that «there was not enough for the actors to get hold of to make a good film».

In short, what was described on release as a mediocre film is remembered today for its success and international fame. Just like a film, the economy follows its own script, its story, particularly in recent years.

We all give our opinion on the economy and all of us, expert analysts included, offer our own diagnosis and the corresponding treatment, which might be a specific monetary policy with varying doses of fiscal policy and entire swathes of second-wave policies. The bravest amongst us even predict the future behaviour of the economy, outlining also the possible secondary effects, all of them brilliant.

Casting my mind back, I would like to recall, albeit with difficulty, that in 2008 interest rates set by the European Central Bank (ECB) stood at 4.25 %. Due to the crisis triggered by Lehman Brothers, interest rates began to plummet that year and the following year they reached 1 %, hovering around this figure for several years before eventually bottoming out in 2016. Rates remained at 0 % until the second half of 2022. They were years of excess liquidity. The 2008 crisis changed the paradigm of monetary policy. Markets experienced unprecedented situations from the economic theory standpoint, including central banks lending money at negative interest rates, one of the great financial anomalies of economic history.

However, what goes round comes round. On 27 July last year, rates rose and all of a sudden hit 0.5 %, rising again two months later – 14 September– by 75 base points, something unheard of at the BCE, to reach 1.25 %. On 2 November they rose a further 75 points to 2 % and then on 21 December they hit 2.5 %. Up by 2.5% in five months. The economy once again had to set the price of money … It was a case of Begin the beguine. The economic cycle kicked in again.

What happened during those years was exceptional, a combination of numerous factors that had kept the price of money at unrealistic levels.

The 2008 crisis changed the paradigm of monetary policy

The film has continued and nobody could have anticipated, at the beginning of 2022, such a twist in the plot. However, inflation caused by (among other reasons) the post-pandemic shock and the Ukraine war with its consequences for the price of gas and many other commodities has disrupted all the earlier recipes, causing the price of money to shoot up in a further case of Begin the beguine. Now, in 2023, the European economy is contending with two reasonably close perspectives: the optimistic one that forecasts a soft landing and another that believes we are entering a situation that will bring negative growth for more than a quarter.

The film is unfolding but there is no question that it is a case of Begin the beguine. Pay heed to the cabin crew and keep your seatbelts tightly fastened because, even though we are in the air, there are tight bends up ahead.

Have a good flight.