Should Eurozone members that break the rules on public finances be excluded temporarily from Europe’s political decision-making?

Dr Bob Swarup: In an ideal world, political sanctions always sound like a good idea. The problem is that the European Union is an imperfect mishmash of countries bound by largely economic ties, not political ones or some shared heritage. Therefore, most play to the local political audience and the only effective restraint is economic, as evidenced by Greece.

Frank Feather: Yes. Rules are toothless unless enforced. Otherwise you will have ad hoc behavior which flaunts those rules. The severity of punishment is for the EU to decide collectively. But either the EU is unified, or it isn’t. Members who misbehave, as with a naughty child, should be “sent to their room” until they apologise and behave.

Leslie L. Kossoff: No. That might be emotionally satisfying but it’s not a realistic tactic to build cohesion. The suggestion, however, demonstrates the underlying problems of the existing structure’s competing agendas – sovereign, economic and political. This needs to be addressed before it becomes necessary for future interventions which create greater dissatisfaction and distrust within member states.

Can a Volcker Rule prevent crises?

Dr Bob Swarup: You can’t change human nature. There have always been outbreaks of speculative fever caused by new profitable opportunities. Some unexpected catalyst then inevitably leads to a crisis as investors scramble to withdraw funds before the brevity of financial memory allows us to repeat the cycle endlessly.

Frank Feather: No specific rule or concept can be 100 percent guaranteed to prevent financial crisis. The Volcker Rule provides strong discipline. But in the end, central banks and commercial banks need to behave themselves. After all, it is in their self-interest to be prudent and not reckless risk takers.

Leslie L. Kossoff: No. A Volcker Rule can, at most, mitigate the risk of crises occurring as a result of what’s already known. But that doesn’t take into account the creativity of the financial sector to create new – and risky – strategies. Regulation is going to have to be just as creative and fluid as financial industry innovation to help avoid crises.

Are fears of a double-dip in the US and UK exaggerated?

Dr Bob Swarup: The market today is strangely dichotomous, with people either strongly bullish and hopeful we are in the early stages of recovery, or perma-bearish and convinced we stand on the cusp of another leg downwards. Economic numbers are weaker but businesses are in strong health. The final coin-toss depends on policy – the scope for error has never been so large.

Frank Feather: There is far greater chance of a “W” recession in the EU than in USA. The EU is challenged by a humongous amount of inter-country debt which could implode. EU governments cannot carry their debt load as easily as can the larger US. I do not expect a double-dip in US, but slow recovery. EU is another matter.

Leslie L. Kossoff: Yes. It’s going to be a long haul for both countries to see their way completely out of the recession, but the Fed and BoE will intervene to avoid a full-blown double dip. The greater problems are the impact of the fear from media reporting, lack of perceivable positive movement to the populace and continuing perception of corporate greed.

Here’s €10,000. Where do you invest?

Dr Bob Swarup: Investment horizons are getting shorter. I’d invest in: high-dividend megacaps – in a low growth world, cashflow and yield are increasingly important; emerging markets – these went through a recession dynamic, not a depression; and real assets – the value of money will be the big fear going forward.

Frank Feather: Frankly, I would sit on the sidelines until the economic picture stabilizes. Otherwise, selective picks in solid futuristic companies with reasonable P/E ratios. Also look at US real estate, which is at its low, and which offers spectacular gains over the next 2-3 years as inventory gets worked off.

Leslie L. Kossoff: In commodities.

What’s the best piece of advice anyone has ever given you?

Dr Bob Swarup: There are two invaluable pieces of advice that come to mind immediately. From JK Galbraith: “The only purpose of economic forecasting is to make astrology look respectable.” And second, from when I began in hedge funds, “All models are broken.”

Frank Feather: “Economic cycles are real. Save for a rainy day!” Post-recession, consumers will have a depression-era mindset for a decade, even a generation. Savings rates are rising already. We will see less debt-based consumption as people demand value. Still, the next slowdown (around 2019) will catch millions unprepared.

Leslie L. Kossoff: Do the best you can with the information you’ve got, knowing that you’re making the best decision possible at the time and with no regrets afterwards. From then on, decide whether and with whom you want to continue doing business or having in your life – but that’s on them. For you, it’s continuous learning.