Apologies for absence. I was, indeed, away last week — in airports, in limousines, in meeting rooms booked under false names in secluded hotels, and in the engine-rooms of my financial advisers, urging the number-crunchers on. Secrecy was of the essence, as with all coups, and there can have been few so dramatic as this since Lionel de Rothschild backed Disraeli to scoop up the Suez Canal. Mine, too, represents a financial solution to a financial and economic problem with political overtones. This week the wraps will come off Project Rubicon. It will be a revelation to the money managers who are now scouring the world in search of trading opportunities. Conventional investment, as they know, is out of fashion. So far this century, shares have been boring at best, and bonds at today’s prices can only appeal to optimists, or pessimists. The money has flowed towards managers who promise something better — into the hedge funds and deployers of venture capital and private equity. Some of these promises will come unstuck, as we are beginning to see. There are not — there never can be — enough good things to go round. Some funds profited from the ‘convergence trade’ — buying (as it might be) Greek debt in the belief that when the drachma joined the euro, Greece’s credit would be thought to be as good as Germany’s. Now they are looking for a divergence trade, to bet on the same process in reverse. Project Rubicon can help them.
Top of the list
The idea now dawning over Europe is that its single currency may not, after all, be there for ever. It is losing the props that were supposed to shore it up; the Stability and Growth Pact, now more or less optional, and the constitution, less than that. What will be the next prop to fall out? Could a country fall out, or be forced out? One candidate is on everyone’s list. Italy joined the euro rather as Britain joined its predecessor, the Exchange Rate Mechanism: ‘like an overweight businessman taking up squash’ (said Robin Angus, the bard of Charlotte Square) ‘in the hope of getting fit and with the prospect of a heart attack.’ Within the ERM, Italy’s attack came just before our own, but at least we learnt from our experience. Italy chose to repeat it, and is now puffing and wheezing, with its economy in recession and its public debt putting on even more weight and earning a rebuke from Brussels. As support goes or might go, that falls short of a message of sympathy. Prognosis: doubtful.
A modest proposal
The markets need to find ways to respond to this. Selling a currency short would be one thing, but selling a component part of a single currency is harder. Avoiding euro bank-notes issued by the Bank of Italy — they have a capital S before the serial number — would be a slow process at best. Avoiding Italy’s debt, or pricing it below Germany’s, would be a slow process, too, though it seems to have started. There is no established mechanism for a country, once inside the euro, to emerge from it. The draughtsmen of the treaty left that out, on purpose. Countries can leave the European Union, as Greenland did, but would still, in theory, be locked into its currency. In practice, a flight of capital or cash might serve to force the locks. The beauty of my project is that it would pick them, and (as Swift said of his Modest Proposal) I trust it will not be found liable to the least objection.
The Italian job
Viva lo scudo
Experience shows that in conglomerates of this kind, there is value and enterprise below head-office level bursting to get out. We shall put this to the test. For Sicily, we expect a local syndicate to make us an offer that we can’t refuse. We shall open negotiations with the Vatican about the re-purchase of the Papal States. In Tuscany, we shall be sensitive to British interests and, through Tony Blair’s good offices, may establish Chiantishire as a Special Administrative Region, like Hong Kong. Venice will resume its serene independence. Lombardy and Piedmont will seize the chance to run their own affairs, and their leaders are already calling for the lira’s return. Indeed, many more of these historic entities will want to assert themselves by issuing or re-issuing their currencies: the florin, the ducat, the Genoese mark, and the Papal scudo, whose deficient silver content did so much to torpedo Latin monetary union, last time round.
Free to respond