Why Merkel and Sarkozy cannot deflect blame onto Anglo-Saxon speculators
Chemistry between the frumpy hausfrau Angela Merkel and the vain little egomaniac Nicolas Sarkozy never looks warm, but their summit in Paris on Tuesday must have been more than usually fraught. The French economy failed to grow in the second quarter, while Germany achieved just 0.1 per cent and the eurozone as a whole notched up only 0.2 per cent, the same as the UK. All of which means activity is too feeble to ease the euro debt crisis by generating higher tax revenues and lower welfare claims, and also means markets are not going to calm down any time soon, especially since Mrs Merkel’s colleagues at home will barely allow her to discuss the possibility of centralised issuance of ‘eurobonds’ under an implicit German guarantee.
So we can expect more mass dumpings of the bonds of whichever eurozone member is in traders’ sights at any given moment, along with assaults on shares such as those of Société Génerale, the French bank that took a pasting last week after being described as ‘on the brink of disaster’ by the Mail on Sunday — which later apologised, having admitted it could not substantiate the claim. That was a catalyst for a ban on short-selling of shares in France, Italy, Spain and Belgium, a footling gesture (European bank shares can still be sold short in London and New York) which will have the opposite of its desired effect if traders take it as an indication of worse news to come.
But still the short-selling ban and the curious SocGen episode raise interesting ethical questions. At the height of the banking crisis in 2008, rampant short-sellers of bank shares were accused of accelerating the collapse of confidence, thereby turning spurious or malicious rumours into self-fulfilling prophecies; but afterwards, the investors’ role was forgotten, while analysis focused on the genuine weaknesses of the banks. This time, all the attention has been on the fiscal failings of eurozone governments and structural tensions of the euro itself, while investors have largely been recognised as doing their job: protecting their positions and making a buck where they can out of a bad situation.
Yet nothing has changed in market behaviour between the two crises. The manager of an international bond fund, or an aggressive trader in bank shares, is not by nature a long-term shareholder-owner or a patriotic citizen. The interests of other stakeholders are not his concern. He is an amoral opportunist, who does not pretend to be anything else. And as the former City minister Lord Myners pointed out this week, the volatility of today’s markets is driven not so much by human decisions to short-sell or otherwise, as by high-frequency buying and selling by ‘black box’ computers exploiting fractional price anomalies from second to second.
This market is a man-made monster without a moral dimension, without wisdom, responding mechanistically to what it observes. It has grown beyond the capacity of its inventors to control it, and it cannot be ‘blamed’. The moral responsibility lay in 2008 with bankers; now it lies with governments. They cannot deflect that burden onto what they choose to call ‘Anglo-Saxon speculators’.
On a happier note I’m still in France, where I’ve been sharing my house with a wandering band of string musicians, including the great Jiri Hudec, principal double-bassist of the Czech Philharmonic Orchestra. I hope this doesn’t sound pretentious, but it’s hard to focus on global market gyrations when Richard Strauss’s sextet from Capriccio is being rehearsed five feet from your desk — Hudec’s sonorous bass, purists will wish to know, replacing the second cello part.
Over dinner, conversation turns to investment choices for those who have lost faith in paper, whether shares or the bonds and banknotes of broke states. Suppose you have a £75,000 legacy, and the tiny interest income it might give you won’t make much difference. You could buy a matching pair of one-kilo gold bars, knit Mickey Mouse socks for them and use them as doorstops — but more likely you would want to keep them in a bullion vault, silently accreting value as confidence in governments sinks. Doomsters think gold could be worth half as much again by Christmas, but it’s still a strangely depressing thing to hold — as Warren Buffett once said, ‘a way of going long on fear’.
More pleasing to the soul, and useful as a refuge, would be a dozen acres of mixed woodland for the same price; a slower growth proposition, but unlikely ever to lose value. Or a couple of cases of Château Pétrus 2005. So long as you don’t drink it (Robert Parker says it’s ‘excruciatingly tannic’ and won’t be ready until at least 2020) there are sure to be Chinese punters willing to pay ever more ridiculous prices for it in years to come.
Then there is the proposition favoured by my house guests: an asset that is durable, portable and, in talented hands, infinitely productive. Naturally, they think anyone with £75,000 to spare should buy a violin. That sort of money won’t buy you the scroll of a Stradivarius, for which a new record was set this year by the 1721 ‘Lady Blunt’, sold at auction for £9.8 million in aid of the Japanese tsunami appeal. But it might buy you a well-authenticated mid-18th century Gagliano from Naples — of a quality that a rising professional would be glad to play on. Christie’s describes the market for instruments as ‘extremely buoyant at present’; given the finite number of violins made by recognised masters, it’s unlikely to deflate in the foreseeable future.
You own it, a star of tomorrow makes music with it (occasionally in private recitals for your guests), and at three- or five-year intervals you have the option to sell it. Schemes matching investors and musicians in this way already exist — the International Violin Society run by the respected London dealer J. & A. Beare, for example — but by the end of dinner my friends and I had begun to concoct a new one. Philanthropists, financiers and music lovers who would like to explore the idea with us are welcome to email email@example.com.