Friday, 25 March 2011

How Do the FT's Editors Sleep at Night?

I wonder if it's just an extreme case of softening up public opinion in advance of the inevitable catastrophe.  Over the years, the FT has gambled a stupid amount of its intellectual credibility on supporting the doomed Euro.  In that, I think it's fair to say that the cheerleader in chief has been Wolfgang Munchau.  But what's this? In today's paper, he sounds almost clear-eyed about how it's all turning out:
"The [European] Council's priority is to triangulate domestic political interests, while managing news headlines. They are getting good at this.  But they still have no crisis resolution strategy. This is why I am sceptical about the pledge that they will do 'whatever it takes' to save the euro. That may turn out to be the ultimate phantom giant."
I'm not a particularly nice or tolerant person, but I recognize that pouring scorn on commentators/institutions with whom I disagree isn't attractive.  But there are two serious questions here:

First, it's clear that Greece, Ireland (who's banks need a further Eu27.5b from the government, apparently, and who's central bank has banned asset sales because of impossible losses they'd generate), and now Portugal are insolvent.  The odds on them defaulting are shortening every day, even though the CDS markets still have European banks' rates at around 350, actually lower than in December, remarkably. One must assume that they've all managed to offload their Greek/Irish/Portuguese (and while you're about it, Spanish & Italian) over the last few months?

Of course they haven't. Which means when the defaults start hitting the banking system, we'll find the current CDS rates on European banks look cheap in retrospect.  The point is this: the second round of the financial crisis is shaping up to happen in Europe, soon. This year, and possibly this quarter. Are you protected? If you're an investor with a natural long bias, how can you be?

Second, almost every aspect of the Eurozone crisis was predictable, and indeed widely predicted (if you were living in Asia at the time, where every economist is Austrian).  The only bit that didn't go exactly to script is that when Ireland's banks went bust, the German banks were in no position to buy them, having already unexpectedly blown themselves up in the CDS market.

Needless to say, the FT either couldn't hear the arguments, or couldn't understand them. Providing such comprehensive editorial aircover for what may yet turn out to be one of the biggest financial and economic disaster of our age deserves some acknowledgement, some contrition and, indeed, some redemptive punishment.

Put it this way: I hope Wolfgang Munchau isn't the only fool at the FT to get paid in Euros.  

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