“It’s a Ponzi scheme, it’s a fraud, it’s a sham”, observed Jim Rogers this week when interviewed on the BBC World Service. One of the world’s most successful investors was, however, not giving his verdict on the dastardly deeds which have confined Bernard Madoff to prison for 150 years, but rather the current strategy of the European Central Bank (ECB) and European leaders in trying to solve the euro zone sovereign debt crisis. For Rogers, their approach is based more on Peter Pan than sound monetary policy.
Ever since euro zone banks snapped up almost half a trillion euros in very low interest three year loans offered by the ECB last week, the question was to what extent these banks would do the sovereigns a favour, as Nicholas Sarkozy hoped, by buying the bonds of euro zone governments. The answer based on the results of Italy’s latest bond auction on Thursday is not encouraging. Investors are simply not prepared to lend money to Italy on a long-term basis without a cripplingly high premium, which at 6.98% is barely below the 7% level that forced Ireland, Greece and Portugal to request international bailouts.
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Posted on January 12, 2012
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