"With information, investors realize that Catalonia is really making an effort," said a broker in the City of London
Robert Casajuana warns, however, that Spain is "getting dangerously close" to offering yields of 7% for 10 year bonds, the point, according to him, "of no return"
London (ACN) - The investors in the City of London "are aware of and realize" that Catalonia "is really making an effort" to cut its deficit. However this is reliant on them receiving a constant supply of detailed and accurate information on the situation in the country. This is according to Robert Casajuana, an international bond trader at one of the most established companies in the British capital, King & Shaxson.
Casajuana warns, however, that Spain as a whole is coming dangerously close to a rate of 7% for 10-year bonds, the kind of yield that may force Madrid to ask for a bail-out, mirroring the situation in Greece, Ireland and Portugal. In an interview with ACN, Casajuana admits that "once again there are many doubts about the situation in Spain", especially after the debt problems of Italy. "I operate within the market of a very British institution, and every morning we have a meeting. The perception of Spain is quite negative," said the broker.
Casajuana's warned of the risks for Spain if yield prices continue this week\u2019s upward trend which reached 6.31%. The Catalan broker says: "We still have a 1% margin, but we are currently hovering at the 6% mark", and the next step, 7%, \u201Cis a very dangerous point." Spain and Italy would have a liquidity problem if they have to offer yields at 7%, according to Casajuana, who considers this figure to be \u201Cnonsense\u201D. The economist pointed out that Greece, Ireland and Portugal had to accept a bail-out after sustaining a 7% yield for a few weeks.
Catalonia and its 'nuances'
On Catalonia, Casajuana says that the recent conference that the Government organised to explain its economical situation was followed "very closely by the City" and has given confidence to investors. However, he reiterates that "we are in the spotlight of the international markets" with such close scrutiny unnerving members of the Government.
Casajuana explains that markets need to receive data updates otherwise "all the important nuances" of Catalonia, which differentiate it from other autonomous communities or whole of Spain, may \u201Cgo unnoticed". Casajuana believes that the situation of Catalonia needs to be explained to investors with total transparency otherwise Catalonia runs the risk of being overlooked in the competitive financial environment of the City.
"The problem here is that people discuss the regions, without understanding the differences between them," admits Casajuana. "The most important point which I try to convey at meetings is that we have to distinguish between the economic situations of each autonomous community and give importance to their individual contributions to the total Spanish GDP". The economist argues that despite Catalonia's hard work to reduce its deficit, there is still a perception problem which can influence the markets.
More information to markets
"The Spanish state has the goal of keeping the budget deficit at a maximum of 1,3%, and this is an issue that has been the subject of much discussion in the City. There is the stereotype of the Catalan rebel who does not follow the Spanish government's strategy" said Casajuana, referring to the fact that the Catalan government can not meet the objectives of Madrid this year despite making cuts to spending of 10%.
"The idea of a rebel Catalonia -said sensationalistically- is not helpful," admits Casajuana, highlighting the need to eliminate misconceptions through "supplying more details." "It is necessary to make the effort to educate the markets to exactly what is happening" reiterates the economist.
Casajuana stresses that while there is much attention being payed to the regions, "their share of debt is not important when compared with the total debt of Spain" "The problem remains the debt and the deficit resulting from the central state, not the autonomous communities" he said. Some of them, such as Catalonia, are already talking steps to solve its deficit problems and therefore they \u201Cmust explain" that to investors.
In addition, he says, Catalonia has always been an interesting opportunity for foreign investment with organisations such as CaixaBank providing an attractive entrance to the financial sector. Casajuana indicates that, with regards to the Autonomous Communities, saving banks also need to be promoted abroad as some investors usually \u201Ctend to put all Spanish financial institutions in the same boat" despite some such as CaixaBank having more interesting prospect than others.
Casajuana believes that if an information campaign is put in place, markets and investors may realize that "if there was a community with the common sense to demonstrate how you can move forward to stabilize public finances, at a regional, state or local level, it is Catalonia".