EU summit: Guarded welcome and concerns from Spain asset managers

The European summit took an important first step towards a solution to the eurozone crisis but much remains to be done and asset managers will be concerned about moves to value all sovereign debt to market.

“The meeting in Brussels has been a first step towards solving the crisis. However, the problem has not been resolved, but at least it has been put on the table rather than under the table,” said Ángel Martínez-Aldama, director general Inverco, the Spanish asset management association. And there are concerns over how the value of sovereign bonds will be calculated.

The market uncertainty and volatility have been major concerns for asset managers and investors in Spain, so the initial agreements will provide some relief, he said.

“It’s the first time since the July [EU] summit that we have more or less a general agreement. Finally there is a response from European leaders.  That’s what the markets were waiting for,” he said.

Among the more positive results, is the recognition that Greece cannot pay back all of its debt which will be cut to 50% or 60%. But the Greek problem has not been resolved as they will have at least to pay the other 50% of the debt, he said. And that will continue to be a problem in the coming weeks and months, because Greece will not be able to pay most of its debt.

The most important issue is not to reduce Greece’s debt, but to boost economic growth, reduce unemployment and raise budget revenues. This is also true for other European countries, he said. “That’s the main issue, not how to reduce their debt or reduce their deficit.”

The decision to account sovereign bonds at market value for a government that is solvent and that has not failed to pay its debts will set a dangerous precedent for Spain and other European governments.

“If we focus on doubts about countries that until now have been able to pay their bonds and obligations, this is going to cause a lot of problems in the future. For me this is the most disappointing [element] from the summit,” Martínez-Aldama said.

Governments should be clear on the principle involved “Unless a country is not able to pay its debt, the value of its sovereign bonds should be 100%. If we break that principle, it will cause a lot of problems in the future,” he said.

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