Tough choices for another difficult year in Spain

It has not been a good year for Spain and the country’s fund managers and 2012 looks equally challenging with developments depending on factors outside the authorities’ control and on the new government’s ability to implement reforms and restore investor confidence.

2011 ends with the economy bordering on recession and about five million or close to 23% of the workforce unemployed. Under the circumstances, resuming economic growth is the most pressing issue, says Ángel Martínez-Aldama, director general of Inverco, Spain’s fund management and pensions funds association.

“This is not only a problem for Spain, but for many European countries, because without growth there is no possibility to pay back all the loans,” he says.

Mariano Rajoy, the new prime minister, won an absolute majority in elections in November promising to push through a programme of fiscal, economic and labour market reforms.

The new government intends to approve legislation establishing stringent rules on government deficits that will expand on changes in the constitutions already introduced in August.

Rajoy said he will act quickly to deal with the problems faced by the country’s financial institutions to help boost liquidity so that banks can start to lend money again to companies and households. He has also promised to promote and approve labour market reforms. It is an ambitious programme and it will not be easy to implement, says Martínez-Aldama.

Spain’s asset management industry also needs stable markets or at least a trend in that direction, he says. Markets have been rising and falling in rapid succession, leaving investors very confused and nervous. More stability is needed to get investors back in the market.

The country’s banks will also need to resolve their liquidity problems to help reduce their dependence on deposits offering excessively high returns. This is a major issue for asset management companies which have found it almost impossible to compete against the bank’s offers of rocketing interest rates and secured returns.


The European Central Bank (ECB) recently approved additional credit support measures to help bank lending and liquidity in the euro area money markets. Some of these measures could have an impact, but it will take time, says Martínez-Aldama.

“I don’t see that the banks’ liquidity problem will be resolved in the coming weeks or even in the coming months. I hope that I’m wrong but I think it [the problem] will last for several months.”

In any case, progress will depend on restoring economic growth, he says. “The ECB can help to resolve this liquidity problem, but in the end, if the economy does not grow, I don’t see the end of our problems.”

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