By Tania Suárez, in Madrid | Manuel Sousa Andrade is head of investment services and trading at Saxo Bank. Sousa proposes that if we want to get out of the current crisis, it’s necessary to get rid of the wrongs of the past and to change investors’ habits.
Regarding the public debt, you say that investors want to ‘protect themselves’ and that’s why they ask for ever higher yields. Can we then expect that the Spanish risk premium falls below 300 basis points by the end of this year? We think Spain is in a vicious circle of debt financing. The expenditure structure and the amount of interests the Spanish public sector faces, show that the model is not sustainable. The regions have demonstrated they are the weakest link in the financials chain of Spain, as many local authorities took over higher debts than they could cope with. That’s why the State must find a mechanism to make the most of the taxes or, at least, to adjust the balance between services and income.
According to a report by Analistas Financieros Internacionales (AFI), it would be more logical that investors put more pressure on Spain than on Italy. What do you think about it? Are the spreads justified? Spain has in its favour its competitive strength and the political will to implement the necessary reforms. Even though the Spanish credit default swaps (CDS) are above the 10-year bonds, both Italy and Spain are practically in line between them. We think spreads reflect the flow of information, and in this precise moment Europe is more concerned about Spain and the possible side effects of the government’s austerity measures.
You have said that ECB liquidity auctions hide the real impact of the crisis. In your opinion, what is the alternative to these auctions? It is not a matter of alternatives, it’s a matter of approach and economic policy. In this crisis, it has been assumed that one of the solutions was injecting capital into some entities in need of financial resources, while the credit was being channelled towards the real economy. Therefore, and because this is a matter of approach and economic policy, the alternative would be not to implement those measures. But in that case, we would have to consider if the society is ready to assume the effects of a lack of liquidity.
Do you think the US’s fiscal strategy to support growth is more successful than Europe’s? Should Europe change its attitude? How should the crisis be tackled? The US has been fast in trying to change the situation, but what works for them doesn’t necessarily works for Europe. However, there is no doubt that restraining the size of the State and new fiscal rules in support of investment will help the recovery. The European socioeconomic model is quite different from that of the US, but nonetheless, to face this crisis we have to think about the model that we believe in. The financial system won’t be again a source of wealth and employment in the same way that it has been in the last 30 years. In this scenario it’s necessary to use all the tools, to be creative.
It is possible to get out of the debt crisis without inflation, as Germany wants? The debt crisis was not created by inflation. In order to get out of it, it’s necessary to eradicate the wrongs of the past and to change investors’ habits. To get out of the crisis, we must build up mechanisms to help companies innovate and maximise export.