Analysis: The trust of a rogue

Wed Sep 5, 2012 1:51am EDT
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By Mike Dolan

LONDON (Reuters) - Seek the trust of financial markets, but only so far as you can trust them.

Germany's paradoxical stance towards financial markets - lauding them for imposing economic discipline, lambasting them for short-termism and irrationality - has been advanced again in series of recent speeches.

Perhaps preparing the public for a renewed effort to realign skewed euro debt yields - as the European Central Bank is expected to outline this week - or maybe just underlining the need for more financial regulation and supervision, Germany's Chancellor Angela Merkel was scathing about markets this week.

She insisted Germany's "guiding principle" remained that of a social market economy, where markets are not allowed to "run wild" and must serve the people rather than the other way around.

"When we look at international markets over the last five years, then we see that they haven't served people, rather they enriched a few, and many people around the world have paid the price for this," she told Bavarian festival goers on Monday.

"The main task for politics today is to bring the spirit of the social market economy into the financial markets so that international financial crises don't repeatedly ruin what people have built up with their own hands and hard work."

Noble sentiments for sure and hardly controversial. Five years of seemingly endless credit turmoil, bank collapses and market herding have hobbled the world economy and clearly expose the folly of free market excesses.

But the puzzling bit of the German message is that its skepticism about market efficiency comes in tandem with an insistence that other euro zone countries - and presumably businesses and households - should secure the confidence of those same markets it so deeply mistrusts.   Continued...