Arnaud SCARPACI: We must take advantage of low interest rates to reduce public debt.

Arnaud Scarpaci

Arnaud Scarpaci has a master’s degree in management sciences from the University of Dauphine since 2002, a postgraduate degree in Finance, Trading and International Trade from ESLSCA since 2004 and a DU AUREP degree in Wealth Management from the University of Clermont Ferrand since 2015. After his first experiences in investment banking with SG DEAI in the equity derivatives department and with Natexis in the fixed income and broad corporate client trading desk, he joined the Reuters group in 2005 before joining Agilis Gestion, a company specialising in quantitative and systematic management, as Managing Partner. Since November 2012, following the merger Montaigne Capital -Agilis Gestion, he is now Portfolio Manager for the mutual funds of the new structure and advises clients invested in life insurance and management mandates.  It was in his capacity as an expert and professional in the business world that he decided to answer our questionnaire:

Public finances are among the major topics of this campaign. What do you think are the most pragmatic solutions to address this issue?

The problem facing France and the eurozone countries is how to reconcile growth and reduction of public debt.

The problem of public debt in recent years has moved back to the background of growth as the ECB’s unconventional policy through its quantitative easing has made it possible to reduce the interest burden. The question will come up again when interest rates rise, particularly for peripheral countries and France.

It is therefore important to choose the type of model today: a model where the additional growth can offset the increase in debt (the model followed by D. Trump) or, on the contrary, if not, consider reducing public debt before rates rise.

To reduce public debt at a national level, public spending must first be reduced by reforming the public sector (as in Sweden, which halved its public debt-to-GDP ratio between 1997 and 2011), reviewing the social security system by combating fraud, and controlling pension expenditure. France’s problem arises in relation to the structural deficit (insufficient public revenue in relation to expenditure)

An alternative solution is also to take advantage of the rise in inflation to increase tax revenues via price-indexed VAT. The idea is therefore to increase inflation faster than the social benefits paid.
Unemployment has never been so high in France. The business world is accused of all the wrongdoings. What solutions do you think are needed to change this state of mind in terms of investment philosophy and policy within companies?

To change the perception of the business world, I think we must now integrate three concepts: the growing regulation in the financial sector in particular, the increasing development of technologies and the phenomenon of digitalization and finally the tax aspect currently weighing on French companies compared to Anglo-Saxon companies which results in a brain drain towards these countries.

On the regulatory side, capital requirements are constantly increasing. But at the same time, mechanisms such as the CICE (tax credit for competitiveness and employment) are a lever to trigger the recruitment of employees and make technological investments. The CICE has benefited supermarkets but the banks have not played the game and this mechanism has not been transferred from the financial to the economic sphere.

In terms of digitisation, the arrival of robo advisors and robots more generally will cause massive waves of redundancies in banks but also in other sectors. It is therefore important to prepare employees for more flexibility but also to become more multi-tasking through training. Today, particularly in investment banks, it can be observed that many employees remain confined to a specific task and this is the main threat in the coming years.

Finally, on the tax side, the corporate tax rate in France is 33% while the United States is considering increasing it to 15%. It is also important to note that tax revenues in France related to corporate income tax represent 12% of total revenues. The IS rate will increase to 28% by 2020 according to the 2017 Finance Act, which will allow French companies to be more competitive, but the margin compared to Anglo-Saxon countries is still high.

For some candidates, Europe and the Euro are accused of all evils. What is your opinion of the European construction and what are, in your opinion, the projects that remain to be filled?

The most urgent thing at the moment is to take advantage of the narrowing spreads between the rates of the peripheral States and Germany to set up a Federal Europe today. The current low rates are likely to promote growth. It is necessary to take advantage of the fact that the focus is less on the debt situation to harmonise tax systems in order to protect the competitiveness of companies in the euro zone and to redirect investment flows from the ECB to Europe via a European Treasury and finally to guarantee with banks the monitoring of flows from the financial sphere to the economic sphere to facilitate credit to companies.

What economic policy do you think needs to be put in place to ensure the success of the next five-year period?

The lull in the debt crisis will only be temporary and we must take advantage of low rates to reduce public debt (by reducing public spending on health care spending and overhauling the pension system, inflation generated by growth), assert ourselves at European level for the establishment of a Federal Europe to enable European and French companies to become more competitive.

Thank you, sir, for your answers.

Interview conducted by Ismail HAJJJI, editorial staff member

Ismail HAJJI

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