Solving the European Debt Crisis: Start Thinking Like an Investor

Many years ago I worked on a project that brought me into contact with senior Government Ministers in Australia. I was treated respectfully but it was clear that I was a foreigner in the world of government and politics. A colleague of mine, whose husband was a MP, explained that politicians are in awe of bankers/asset managers since they cannot understand how finance people can command such power while remaining largely anonymous…

The modus operandi of government and politics is very public – official meetings, public hearings, press conferences, leaks, interviews – lots of noise. In contrast, the modus operandi of an investor is a bloomberg screen and a custody account – very silent. It should not be a surprise that investors take fright when the business of government gets noisy.

This is clearly evident in the current European Debt Crisis. Every time the public political debate about a bailout/default/downgrade etc flares up, the bond market falls and interest rates go up. When things quieten down, the market recovers and interest rates fall. Investors, by their nature, do not like noise.

Lowering borrowing costs for Greece, Portugal, Ireland and Spain is the only thing that will fix the current crisis. Politicians need to recognise that their traditional public modus operandi is just making things worse. Were they to cease airing their differences and start thinking like investors then markets will settle and rates will go down.