From Brian Carney’s weekend interview with Bernard Connolly:
…But even if the Greeks were undisciplined, he says, “both the sovereign-debt crisis and the banking crisis are symptoms, not causes. And the underlying problem has been that there was a massive bubble generated in the world as a whole by monetary policy—but particularly in the euro zone” by European Central Bank policy.
The bubble formed like this: When countries such as Ireland, Greece and Spain joined the euro, their interest rates immediately dropped to near-German levels, in some cases from double-digit territory. “The optimism created by these countries’ suddenly finding that they could have low interest rates without their currencies collapsing, which had been their previous experience, led people to think that there was a genuine rate-of-return revolution going on,” he says.
There had been an increase in the rates of return in Ireland “and to some extent in Spain” in the run-up to euro membership, thanks to structural reforms in those countries in the pre-euro period. But by the time the euro rolled around, money was flowing into these countries out of all proportion to the opportunities available…..
Read more at The Weekend Interview with Bernard Connolly: Why the Euro Crisis Isn't Over – WSJ.com.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
