PIMCO chief Bill Gross’ prognostications often don’t make any sense to me, but at one crucial moment during this Bloomberg TV interview he stops speaking in metaphors and makes the key point about the monetary origins of the eurozone fiscal crisis:
They say 7%, but that is a fictional number. No one really knows. What’s important to me and to PIMCO going forward is to look at the entire zone and not the falling dominoes in Greece, Ireland, Portugal, and perhaps Spain, but to look at the core. Imagine a financing rate for the core if you used Italy and France together, not Germany because they are a little on the too-high quality side and too low yield, but together Italy and France yield about 4% of the total. That’s still too high a rate relative to nominal growth. What the EU wants is nominal GDP growth. They want to reflate. They want some inflation as well. 4%-types of financing is still above that 1%-2% nominal GDP growth that they are experiencing. Rates in Spain, Ireland and Greece are another matter, but rates at the core are still too high and they need the private market to come back in.
That’s not to deny that other economic problems exist on the continent. But lurking at the center of them all is this nominal growth crisis. The European Central Bank needs to stop messing around in national politics and pony up the growth.