“If only Europe worked as a group, we could benefit from US economic growth”


An agreement between president Barack Obama, who supports raising taxes, and the Republican party, which prefers cutting spending, seems increasingly difficult. Taking into account the US’ economic context, which would be the most effective and reasonable option?

I think Republicans and Democrats in the US have never been so much in disagreement as now. This only means that everything related to the debt ceiling will be adversely affected, and that both investors and taxpayers will be the least favoured. Taking into account the current economic context in the US, the best option would be reducing the debt burden. It does not matter how they do it, they just should do it. Maybe a combination of both options would be the best choice… the thing is, the opposition between both parties is such that reaching an agreement seems very remote.

In a report published by JP Morgan, analysts say that the “sequestration” will have a real impact on the US economy. What would the impact be on the global economy?

The so-called “sequestration” is a way of cutting spending in the government programmes and then, using that money to pay the budget deficit. This was one of the most important parts of the ‘Fiscal Cliff’: the aim was saving $1.2 trillion until 2021 and cutting spending in $85 billion in 2013. The impact on the global economy would be huge, and other countries and businesses would be affected as well.

Regarding the US, the most affected programmes are defence, transports, food safety and control or internal taxes. All the companies in those sectors will be hit.

Some experts say the US economy has entered an expansion cycle with markets at historically high levels. How long will this economic boom last for? Could it spread to the eurozone?

It is true: North American markets are indeed at historically high levels with positive macroeconomic figures and a positive tendency, which means growth expectations and possibilities of improvement of the indebtedness ratio. We’ll need to watch out for negative macroeconomic signals.

However, I think this momentum will not spread to the eurozone or European markets. Their economic situation is completely different regarding fiscal arrangements, and their macroeconomic references have not been as positive as in the US. I cannot see equity markets in Europe improving because Europe does not work as a group.

Talking about Europe, sources from Barclays claim that “Germany would need a massive increase of interest rates, whereas Spain, Italy and France would need a decrease.” Do you agree with this statement?

I agree in the sense that Germany is living right now a very different situation from that of Spain, Italy, Portugal… However, I totally disagree with the concept of “massive increase”. Germany has many problems that have not come to light yet, but will soon do so. It is true that the amount of debt is lower than its neighbours, but Germany is not precisely going through its best moment, either.

Lately, we have seen interest rate differentials tighten between Italy and Spain, and Italian Credit Default Swaps (CDS) are more expensive than Spain’s. Does this mean that Spain is better positioned to come out of the recession? Has Spain regained market trust?

It looks like the CDS reference points to a stable recovery of the Spanish economy. However, there is still a long way to go. Looking to Italy and feeling pleased because the Spanish economy appears to be in a better situation right now would be a serious mistake. The real reference in Europe is Germany, so the only valid reference to really check Spain’s improvement should be the German economy.

Nonetheless, things do look better, which is partly reflected by the lower cost of credit for the government. Spanish sovereign bonds now yield significantly less when compared with previous sales. It means that the increase in investor confidence is a reality.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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