Harrison: Politicians on the naughty step

EUROPE ON THE BRINK

Threadneedle's head of equities Leigh Harrison explains why the bond markets are the clearest indicator of the progress of the eurozone crisis, as politicians fail to find a credible solution.

Many European governments borrowed too much money at interest rates that were artificially low because of the false assumption of joint liability. Add to this the fact banks, encouraged by low interest rates, lent too much money to the economy at the wrong price. Now it is payback time. These loans would now price on a totally different basis reflecting their ‘true’ risk and revealing the ‘true’ state of the finances of sovereigns and banks. This massive mispricing of risk, echoing the sub-prime crisis in the US, leaves a number of sovereigns effectively bust, and a big chunk of th...