As far as most observers are concerned, Mark Carney’s speech at the Mansion House last Thursday boiled down to a single half sentence. The first rise in interest rates since July 2007 “could happen sooner than markets currently expect”, the Bank of England Governor uttered, to assembled City grandees and the wider world beyond. This sparked a frenzy of speculation that rates could start rising from their historic low of 0.5pc, where they’ve been since March 2009, sooner rather than later.
Before Thursday, the consensus expressed in bond and currency markets was that the first rate increase in almost seven years would happen early in the second quarter of 2015. Carney’s after-dinner bombshell changed that, with economists scrambling to update their forecasts.
The eurozone crisis seems on the cusp of some kind of denouement. The trouble is that no-one can possibly know what that long-awaited outcome will be. Maybe Germany will finally relent and agree to massive monetization and “debt-pooling” – effectively bailing-out the rest of the eurozone. Or perhaps, once again, the eurocrats will “extend and pretend”, building an even higher financial firewall, while continuing to muddle through.
The danger is, though, that the markets lose patience, sparking a violent “Lehman style” financial meltdown, with all the global fall-out that would entail. While that would be disastrous, the worst of all possible outcomes, there is a growing sense that it is only another “Minsky moment”, combined with some serious civil unrest, that will force the eurozone’s main policy players to face the really tough decisions.