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Everyone's heard of Michael Burry. 'Cassandra' jumps on and off Twitter regularly. But have you heard of Bernard Connolly?
If not, you're about to. He's a fascinating character and there are loads of lessons to take from his back story.
So... Who is he? If you check wikipedia, you'll get this 👇
Bernard Connolly is a British economist noted for his dislike of the euro.
He is known for writing The Rotten Heart of Europe: The Dirty War for Europe's Money.
Great. Another eurosceptic, we've heard it all before (rolls eyes).
Not so fast. Bernard's not just any old eurosceptic. He worked within the European Commission and benefitted from an insider perspective.
While at the EC, Connolly had a variety of roles 👇
- Head of the unit responsible for the European Monetary System and monetary policies (department charged with ushering the euro in)
- A Member of the Monetary Policy and Foreign Exchange Policy sub-committees of the Committee of Central bank Governors
- On the OECD Group of High-Level Monetary Experts
The WSJ described him as "an instrumental figure in the EU bureaucracy".
Until, in 1995, he took some time off to write this book... 👇
He got the message across. It's hard to imagine anyone openly criticising their employer to this extent in the modern day.
Unsurprisingly, Connolly was sacked, and the case ended up in the European Court of Justice. In 2001, the Court ruled in favour of the Commission. 👇
The European Court of Justice ruled yesterday that the European Union can lawfully suppress political criticism of its institutions and of leading figures, sweeping aside English Common Law and 50 years of European precedents on civil liberties.
The ruling stated that the commission could restrict dissent in order to "protect the rights of others" and punish individuals who "damaged the institution's image and reputation".
The court called the Connolly book "aggressive, derogatory and insulting", taking particular umbrage at the author's suggestion that Economic and Monetary Union was a threat to democracy, freedom and "ultimately peace".
But, he was certain he was right. And his appearance on "The Great Euro Debate" in 1997 (when the question of Britain joining the single currency was seriously considered) showed his conviction. (7 minute clip) 👇
Now, conviction is always a tough balancing act. "Strong Opinions, Loosely Held" is a good rule of thumb.
Not for Bernard. There's a great part in the debate where Peter Sutherland is practically mocking him, yet he stands firm...
PS: Are the 15 bank governors completely wrong in their view?
You read the Delors report in 1989. You know what it said.
It included the (then) Governor of the Bank of England.
Did you disagree fundamentally with what it said?
PS: Alright, well they were all wrong... And you disagree totally with the views of the prime ministers and the governments of the smaller countries, leave aside Germany & France. Belgium, Netherlands, Luxembourg, Ireland, Italy, Portugal, Spain...
Are they all wrong?
Are they all courting disaster?
BC: Yes, they are
PS: And you're right?
BC: What those countries want, is what Jacques Delors promised them:
A takeover of their debts. Now, if their debts are taken over, it can cause major problems for France, Germany & Britain.
Sutherland's appeal to authority is a common logical fallacy. Supposedly, those in positions of power know more than anyone else. Look at the calibre of leadership that's prevalent around the world now and see if you believe that...
Back to Bernard.
In 1998, just months before the euro’s introduction, he predicted that at least one of Europe’s weakest countries would face a rising budget deficit, a shrinking economy and a “downward spiral from which there is no escape unaided. When that happens, the country concerned will be faced with a risk of sovereign default.”
His fears about the single currency were validated when the Eurozone debt crisis hit. The NY Times published this 👇
And history repeated itself again. This time at a 2011 conference 👇
“The current policy of lending plus austerity will lead to social unrest,” Mr. Connolly told investors and policy makers at a conference held this spring in Los Angeles by the Milken Institute, arguing the case that Greece, Italy, Portugal and Spain could not simply cut their way to recovery.
“And one should not forget that of the four countries we are talking about, all have had civil wars, fascist dictatorships and revolutions. That is history,” he concluded, his voice rising above the chortles and gasps coming from the audience and the Europeans on his panel.
“And that is the future if this malignant lunacy of monetary union is pursued and crushes these countries into the ground.”
Yep. Laughed at again. But it did lead to social unrest as we know. Granted, it's a bit dramatic at the end, but you certainly get the point.
There's a big difference between Connolly and the more well-known doomsayers you might hear of. He doesn't do it for the fame. It's genuine concern from someone who saw the sausage being made, and realised what it meant.
Others were able to monetise his views 👇
“It took a while, but we finally were able to monetize Bernard’s views on Europe,” said James Aitken, who worked with him at AIG Financial Products and describes his job at the time as translating Mr. Connolly’s arcane musings into actual investment strategies.
While other investors have also profited from following Mr. Connolly’s advice, Mr. Aitken says that the analyst’s true passion is to try to prevent the social and political train wreck he fears is just around the corner.
“He is anguished,” said Mr. Aitken, who runs his own research service for investors, Aitken Advisors, from his home in London. “He sees where this is going and is warning against the human tragedy.”
Political unrest has been ever-present in Europe since 2012, only really varying in magnitude rather than being resolved.
Today, there's talk of new elections in Italy (again), French politics is divided with no majority for Macron, and who knows what will happen in Germany in the next couple of years. Maybe the gas stays on, but can the German economy remain competitive with such high energy costs? Is Scholz a capable leader in a crisis?
It's easy to dismiss this as short-term thinking. "What You See Is All There Is".
But everything that's happened (and is happening) is precisely what has been warned about since the inception of the single currency.
The current crisis of energy and inflation plus higher interest rates will undoubtedly test the unity of a eurozone which has limped along since the GFC.
The euro has now hit parity with the dollar. Nomura suggests that Europe’s terms-of-trade have suffered such a large shock that European manufacturing industries now need an exchange rate of 0.65 for good health.
Could it be a straight choice between EU superstate and EU breakup?
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