Draghi and his magic bee: James Saft

July 31, 2012

By James Saft

(Reuters) – Beware central bankers selling euros employing false analogies.

European Central Bank President Mario Draghi invited us last week to believe a string of unlikely things when he compared the euro’s travails to the supposedly impossible flight of the bumblebee.

The news that drove markets upward last week, however, was Draghi’s pledge to “do whatever it takes” to preserve the euro, wording that investors interpreted as flagging another round of bond purchases of weak euro zone nations in the secondary market.

Perhaps more striking was the following flight of entomology: “The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does,” Draghi told a conference in London on Friday.

“So the euro was a bumblebee that flew very well for several years. And now – and I think people ask “how come?” – probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis. The bumblebee would have to graduate to a real bee. And that’s what it’s doing.”

It’s hard to think of a single line of argument that better exemplifies the disorganized magical thinking of euro zone policy makers, and ironically given that markets jumped on the speech, one that gives you better reason to be short the euro and the euro zone.

This reasoning is wrong and confused in a number of ways. First, scientists now do understand how bumblebees fly. They are notably inefficient, which might also be said of the ECB, but the idea that bumblebee flight is scientifically impossible appears to be a myth. blogs.reuters.com/james-saft

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Metaphors should not be taken too literally.
But, with an hindsight bias, we can now say that your advice to stay short on the euro was not a good idea.

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