SVB’s Mantellán: “Cutting waste in the Spanish public sector will help growth”

By Tania Suárez, in Madrid | The director of strategy and macroeconomics at Inverseguros SVB, Alberto Matellán, believes that austerity and growth are not only compatible but should be applied together. Mantellán thinks the European Central Bank could put again in use its monetary policy tools, such as the Securities Market Programme (SMP) or the Long-Term Refinancing Operation (LTRO).

Should the ECB lower again interest rates for the euro zone? The current monetary policy tools are two: the SMP or the LTROs. It is quite possible that the European Central Bank uses them again, because they have the potential to stabilise the markets in hard moments. On the contrary, interest rate isn’t a useful monetary policy tool any more as its variations don’t get to the real economy because there’s a shortage of credit. Besides, the effective interest rates are already close to zero, so half point up or down is simply insignificant.

Are all the bailouts and firewalls developed enough to avoid the collapse of the euro zone in case Greece leaves the euro? The European measures aren’t planned to contain the situation, if a country has to leave the euro. They have been created to correct the excesses of debt and deficit, and to support the financing of banks. If a country leaves the euro, it would probably be necessary a large-scale recapitalisation of the entities, and a mechanism to restore in the Target2 [the compensating payment system between European central banks] the balances of the country that breaks away from it. So far, there hasn’t been set any mechanism up in order to face those matters.

On the other hand, it isn’t clear whether there would be a collapse were Greece to leave the euro. However, if the continental authorities could isolate the problem and show some unity, the situation could turn positive.

French president Hollande’s growth plan collides with German Chancellor Merkel’s austerity plan. Do you think it is possible to combine them both? Austerity and growth shouldn’t be incompatible. As a matter of fact, the original adjustment plans had proposals of structural reforms to improve the second one. We have to remember that, together with cost cutting and raising taxes, there already were measures to stimulate competitiveness, efficiency and export activity.

But they need time to bear fruit, and they are usually quite unpopular. So austerity and growth aren’t incompatible at all: an adjustment of the public sector successfully carried out benefits economic growth. To be successful, an adjustment plan should be focused on cutting expenditure when it isn’t efficient. The risk is to think that austerity and growth are incompatible

Moody’s is now preparing another rating downgrade for 100 banks. Is it justified the constant punishment from the rating agencies? The rating agencies reflect the deterioration of the credit conditions after markets do. That’s why the rating downgrades are, mostly, priced in on the current value in the fixed income sector, whether we are talking about banks or governments. The proof is that their announcement barely varies the prices.

Nonetheless, in general, there is an incorrect interpretation of these agencies role. Their classifications are based on changing circumstances so, logically, they evolve as fast as those external conditions vary. On the other hand, they are very vague measurements of intangible and weakly defined factors, such as the probability of non-payment. They don’t include all the elements that are present in the real world. From that point of view, they have an error rate really high. That’s why their classifications shouldn’t be used as the leading measure of the credit quality, and risk regulations shouldn’t give them such an influential role.

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