...European leaders have not shied away from directly criticizing the market's behavior, when they don't like it. This has been especially true while the Greek fiscal crisis has wound on. There's been a lot of talk, for instance, of a “speculative attack” on Greece, and thinly veiled warnings directed at market participants. After the Eurozone Finance Ministers' meeting last Friday, French Finance Minister Christine Lagarde went so far as to warn off speculators. They “had better be careful,” she said, “There is clearly a statement of solidarity—we are closing ranks. Whether we are big member states or small member states we are all in this together and we are not going to let any of us down.” She even followed this with an implicit regulatory threat. “What we are going to take away from this crisis,” she added, “is certainly a second look at the validity, the solidity of [Credit default swaps] on sovereign debt.”
It's a little hard to imagine Tim Geithner, or any American politician of sound mind, threatening hedge funds with regulation if they didn't stop shorting the stock market. (Actually, he'd probably just ban the practice.) But the swift drop in the Euro last week struck a nerve. It's just too reminiscent of the speculative attacks (by George Soros, et.al.) that surrounded the establishment of the European Exchange Rate Mechanism, the system that preceded the Euro, in the early nineties. Last week, the short position against the European common currency hit a record high. Still, to call it a “speculative attack” is to take a point of view on the appropriate level of the Euro. Also, it assumes a concerted effort.
Unlike in the Anglophone world, where markets are spoken of like acts of nature, in Europe, it raises few eyebrows when politicians or commentators ascribe motives to the financial market. Here's how Jean-Marc Sylvestre, chef economics editor for French TV channel TF1, recently described the speculative attacks on Greece:
The architects are investment funds, in particular hedge funds, with considerable liquidity, whose job it is to put that money to work for maximum profit… these investment funds choose an investment target they feel is fragile and swoop down on it very quickly… on the recommendation of their financial analysts, who returned from Davos brimming with confidence, many hedge funds began to sell Greek debt heavily, and then the Euro, hoping to redeem the paper in two or three weeks when it was worthless.
Note the predatory metaphor, the emphasis on their greed, and their analysts' pride— “swooping down quickly for maximum profit”, as opposed to, one imagines, less rapacious investors, who invest at a leisurely pace and for middling profits. The point is, there's a strong mainstream European tradition of belief that markets are controlled by cabals, at least some of the time. It's a point of view that could get you banned from CNBC...
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From Europe: Anglo-Saxon Bankers Go Home
We thought the Battle of Hastings ended in 1066?
Not if you listen to French Finance Minister Christine Lagarde description of the six “Anglo Saxon” financial institutions have been singled out for speculating on Greek debt during the ongoing crisis that has hit the European Union country.
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And Wall Street thought it had fight on its hands with the Obama Administration.
“If this were the U.S., they would get a gentle tap on the wrist but in Europe, they're more skeptical about big banks,” Simon Johnson, an economic professor at MIT's Sloan School of Management and a former chief economist at the International Monetary Fund, told the Associated Press. Johnson is calling for European regulators launch a special audit of Goldman and all its European clients going back 10 years to when the Euro was introduced.
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