It's all falling apart now. I can't imagine that
the Eurozone can last for more than a few weeks
now. Since WWII there have never been so many
deep and nasty quarrels going on between
notionally democratic politicians as now.
Keith
At 03:37 18/11/2011, you wrote:
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<http://www.nytimes.com/2011/11/18/business/global/the-rise-of-a-euro-doomsayer.html?_r=1&nl=afternoonupdate&emc=aua2&pagewanted=print>http://www.nytimes.com/2011/11/18/business/global/the-rise-of-a-euro-doomsayer.html?_r=1&nl=afternoonupdate&emc=aua2&pagewanted=print
November 17, 2011 NY Times
Words of a Euro Doomsayer Have New Resonance
By
<http://topics.nytimes.com/top/reference/timestopics/people/t/landon_jr_thomas/index.html?inline=nyt-per>LANDON
THOMAS Jr.
LONDON The euro zone was crumbling, just as he
had long predicted, yet Bernard Connolly,
Europes most persistent prophet of doom, still faced a skeptical audience.
The current policy of lending plus austerity
will lead to social unrest, Mr. Connolly told
investors and policy makers at a conference held
this spring in Los Angeles by the Milken
Institute, arguing the case that Greece, Italy,
Portugal and Spain could not simply cut their way to recovery.
And one should not forget that of the four
countries we are talking about, all have had
civil wars, fascist dictatorships and
revolutions. That is history, he concluded, his
voice rising above the chortles and gasps coming
from the audience and the Europeans on his
panel. And that is the future if this malignant
lunacy of monetary union is pursued and crushes
these countries into the ground.
Mr. Connolly has been warning for years that
Europe was heading for disaster. As a European
Union economist in the early 1990s, he helped
design the common currencys framework, but then
he was dismissed after he expressed turncoat
views. In 1998, just months before
<http://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/euro/index.html?inline=nyt-classifier>the
euros introduction, he predicted that at least
one of Europes weakest countries would face a
rising budget deficit, a shrinking economy and a
downward spiral from which there is no escape
unaided. When that happens, the country
concerned will be faced with a risk of sovereign default.
Now, as the
<http://topics.nytimes.com/top/reference/timestopics/subjects/e/european_sovereign_debt_crisis/index.html?inline=nyt-classifier>European
debt crisis that began in Greece threatens to
engulf even France along with Italy and Spain,
Mr. Connollys longstanding proposition that the
foisting of a common currency upon so many
disparate nations would end in ruin is getting a
much wider hearing. Hedge funds looking to bet
on a euro zone breakup scour his research reports for insights.
Longer-term investors who listened to his
decade-long recommendations to steer clear of
the bonds of Greece, Italy, Portugal and Spain
are congratulating themselves for not falling
into the trap that bankrupted MF Global, the
investment firm run until recently by Jon S.
Corzine, the former Goldman Sachs executive and New Jersey governor.
And central bankers outside the euro zone are
among his most faithful readers.
In 2008, Mark Carney, the governor of the
Canadian central bank, cited the British-born
Mr. Connolly, along with the far more prominent
Nouriel Roubini of New York University and the
Harvard economist Kenneth S. Rogoff, as having
been among the few who foresaw the global
financial crisis. Mervyn A. King, the governor
of the Bank of England, has become more vocal
about the euro zones problems and is also a longtime follower.
Nicolas Carn, an independent research analyst
and money manager who worked previously as chief
investment strategist for the London-based hedge
fund Odey Asset Management, is one of Mr.
Connollys biggest fans. Bernard has influenced
me a great deal, Mr. Carn said. He has shaped
my views on Europe and contributed significantly
to my investment performance.
To be sure, Mr. Connolly was not the only
analyst who raised early warning flags about the
euro project. Economists like Martin Feldstein
of Harvard and Paul Krugman, a Princeton
economist who writes an Op-Ed page column for
The New York Times, have been longtime critics,
as were many experts in Britain, which has long
been skeptical of the euro. But few have gone on
to devote more or less their entire professional
career to exposing Europes monetary fault lines.
Unlike many critics of the euro, Mr. Connolly,
61, plies his trade mostly in private, eschewing
cable television programs, opinion pages and policy journals.
He represents a new breed of independent analyst
that has come increasingly to the fore since the
financial crisis broke in 2008.
As investment banks have cut down on staff and
remain constrained by their banking and
government relationships, independent analysts
like Mr. Connolly, who are mostly pessimistic in
outlook, have become highly popular for hedge
fund investors who wager large sums of money
betting against the currencies, bonds and banks
of countries headed for trouble.
Mr. Connolly worked for AIG Financial Products,
the banking arm of the insurance company
American International Group, until it went into
government receivership. He now operates out of
a nondescript office in New York, where he is
said to pound out as much as 20,000 words of analysis a week.
His insights, like those of other such analysts
scattered around the globe, do not come cheap.
While the price Mr. Connolly charges is not
public, analysts of his stature command, in some
cases, as much as $100,000 for a full array of
services, including regular meetings and phone
calls along with written reports.
And like many of them, Mr. Connolly the
Oxford-educated son of a bus driver from
Manchester guards his privacy zealously.
He declined numerous requests to comment for
this article. People who know him say that his
public reticence is also fed by a lingering
anxiety that officials in power will exact some form of revenge.
The origins of that fear, as well as the anger
and passion that drive him, date to 1995, when
he took a leave from his job with the European
Commission to write The Rotten Heart of
Europe. The book was an excoriating history of
the failure of the euros predecessor, the European exchange rate mechanism.
In Britain, where suspicions of common European
economic policy ran very high, the book was a
hit for its attacks on the architects of the
European common currency, including Jacques
Delors, the former head of the European
Commission, and Jean-Claude Trichet, the French
finance official who would go on to run the
European Central Bank for eight years.
The book was greeted less enthusiastically in
Brussels; Mr. Connolly was told not to return
from leave to reclaim his position.
Moreover, the European Commission investigated
whether he had disclosed any proprietary
information in his book. Investigators found that he had not.
In 2005, when Greek, Portuguese and Irish bonds
were trading at rates barely higher than
Germanys, Mr. Connollys work at AIG Financial
Products persuaded a small group of hedge funds
and independent investors to bet on a euro zone crackup.
They did so by buying the
<http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_default_swaps/index.html?inline=nyt-classifier>credit-default
swaps of what he saw as the most vulnerable European countries.
When fears that those countries would default
took off in 2008 and 2009, sending the values of
those swaps skyward, they were able to sell reaping large profits.
It took a while, but we finally were able to
monetize Bernards views on Europe, said James
Aitken, who worked with him at AIG Financial
Products and describes his job at the time as
translating Mr. Connollys arcane musings into actual investment strategies.
While other investors have also profited from
following Mr. Connollys advice, Mr. Aitken says
that the analysts true passion is to try to
prevent the social and political train wreck he
fears is just around the corner.
He is anguished, said Mr. Aitken, who runs his
own research service for investors, Aitken
Advisors, from his home in London. He sees
where this is going and is warning against the human tragedy.
Yra Harris, a trader on the Chicago Mercantile
Exchange, is another of Mr. Connollys
supporters in the investment world. Bernard is
like no one I have ever met, he said, citing
his work as inspiration for some recent profits
he made selling Italian bond futures.
Mr. Harris concedes that Mr. Connollys reports
can be hard going. Indeed, some exceed 70 pages,
cite Hegel and John Stuart Mill and include
footnotes that can run on for more than a page.
But Mr. Harris is so convinced that Mr.
Connollys views should find a wider audience
that he and a colleague have offered to pay Mr.
Connollys publisher $75,000 to reissue 25,000
paperback copies of Rotten Heart, now out of print.
I will pay out of my pocket because he has
meant so much to me, Mr. Harris said. Each
time I talk to him, its like Ive been to Harvard for four years.
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Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/11/
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