According to Jordi Gual, director of Telefónica Brazil and chairman of VidaCaixa, the biggest problem of the single European market is precisely that, “we still don’t have a single market. Neither in banking, nor in energy, nor in telecommunications… Nor have we created a single risk-free European asset, which is fundamental in the financial markets”.
In the next issue of Consejeros, the former chairman of Caixabank gives his forecast for the US economy and the euro zone:
Q- What is the lesson to be drawn from the decade of lax monetary policy and the loss of central banks’ current ability to manoeuvre in the face of inflation?
A- A lesson of humility. For many years, central banks have pursued ineffective monetary policies. In Europe, they have been pursuing a legally mandated 2% inflation target and we have had periods of deflation, where there was no way for prices to rise, and they have lowered rates to zero, and then done quantitative easing. This didn’t get them to 2% and it didn’t revive economic activity much either. Instead, this easy money policy has led to excessive risk-taking in financial markets or real estate markets. These policies have distorted asset markets and led to misallocation of investments, excessive risk-taking and unhealthy speculation. And then, as it turned out, with covid, they reacted with excessive liquidity creation, which is partly behind the inflationary burst of 2022 and 2023, which may yet continue. So, a lesson in humility.
Q- What do you think is the most likely macroeconomic scenario three years ahead?
A- I am answering only about the United States and Europe because the rest have a different dynamic. In the United States, and less so in Europe, the ten-year interest rate curve has inverted and we have not had such a sharp and rapid rise in interest rates for many years. Such sharp rises lead to a very sharp economic slowdown and, normally, a recession. When we talk about a recession, it is not necessarily the recession of 2008, far from it. The level of household and corporate debt is much lower than it was then. Banks are healthy. Therefore, there may be a one-off drop in activity in 2024 and then a recovery. It is a recession that will come with an all-time low in unemployment in both the United States and Europe. It is a classic recession, due to excess demand and an overheated economy. This is my forecast for the next three years. If other elements come into play, such as the evolution of the war in Ukraine, my view would change. That is why we economists are better at diagnosing than forecasting, because the latter is subject to a thousand things that can happen, for example, geopolitics.
Q- It is becoming more and more common to contrast Europe’s low competitiveness with that of the US because of excessive regulation and supervision. What is your opinion on this issue?
A- The debate in Europe has become somewhat unfocused by the Biden administration’s policy of subsidies to companies. But in Europe we should go back to the root of the problems we have, which are not over-regulation or stronger or weaker competition policy. The problem is that we still have a single market that is not single but fragmented. That for many industries, we have many small operators. For example, I have been on the board of Telefónica for a long time, and now I am on the board of Brazil. How many mobile operators are there in the United States? Three. How many are there in Europe? We are almost in the triple digits. And I could talk about other markets. We have a problem of high fragmentation in the banking market, in the energy market, in telecommunications… This would be, for me, the main agenda. Breaking down barriers. There is a lot of protectionism within member states. Many years ago, as chief economist of La Caixa, I wrote that European economic and monetary policy was a house of straw, like the story of the three little pigs and the wolf. The sovereign debt crisis almost took it by storm. Why? Because we have made an economic and monetary union without a public budget union. As long as we don’t have it, we are making little mock-ups and inventions to try to keep the house of straw. Nor have we made a single risk-free European asset, which is fundamental in financial markets.
