“Older people don’t tend to riot.” JPMorgan Asset Management’s Nick Gartside is discussing the possibility of continental Europeans rising en masse in bloody protest against unemployment and austerity measures handed down by a central bank that usurps national sovereignty.
A mere 10 years ago, this discussion would have been unthinkable.
Bond fund managers such as Mr Gartside, who is international chief investment officer for JPMAM’s global fixed income and currency group, are accustomed to analysing risk and the likelihood of outcomes.
Globalised financial markets mean managers’ decisions hinge on how they perceive socio-geopolitical trends and risks, and how markets will respond, not least when global markets are in crisis mode.
In this environment, with its heightened “interplay between economics and politics” affecting almost every market, Mr Gartside is fortunate to be able to draw on his Masters in international relations, gained at Cambridge University in 1997. We meet on a clammy July day in an understated office by London Wall.
The European Central Bank and the Bank of England have just told markets they intend to maintain near-zero interest rates for the foreseeable future. The conversation leads, inevitably, to what will become of the eurozone.
The outlook, says Mr Gartside, depends on a combination of issues. “We broadly think of the eurozone as a triangle of very complex problems: very weak public finances, bank fragility and sovereign stress. The ECB has given if not a backstop then certainly clarity to two sides of that triangle.
It has made it clear liquidity will be provided to banks and that in terms of sovereign stress there is a limit. That leaves weak public finances. Reforming public finances is a process that takes at least a decade. It is also probably a code word for austerity and cuts. That is where we are with the eurozone now.”
Large anti-austerity protests have flared up in Greece, Italy, Spain, Portugal, France, Ireland and the UK, and upheavals in Tunisia and Egypt started as anti-unemployment and anti-austerity protests before evolving into wider revolutions.
Mr Gartside says public finance reforms will create “real flashpoints” from “a horrible process whereby people get poorer, where you are going to get political instability as politicians implement very unpopular policies”.
Yet he says the civil unrest across Europe “has not been particularly high” and is unlikely to tip over into market instability – because of Europe’s demographics. Ageing populations combined with falling birth rates is an “overarching theme for developing economies and some emerging economies”, Mr Gartside says, in response to whether Pimco’s “new normal” post-2007 landscape of low growth, high unemployment, low investment returns and heavy government economic intervention is an accurate picture.
“Perhaps we have an environment where growth rates are structurally lower than, say, in the post-war period. That affects a number of eurozone countries acutely: Germany and Italy spring to mind. It is no accident that one of the lowest growth rates is in Japan, which has a population that is falling,” Mr Gartside explains.
