What markets are trying to tell Europe—and why it should listen

When Europeans turn their attention to what markets have to say, it is usually because trouble is brewing. A decade ago, as the euro-zone crisis raged, politicians obsessively checked the “spread” between the annual interest on bonds issued by Italy or Greece over those of Germany to gauge just how nervous investors were about lending to profligate southern countries compared with frugal northern ones. More recently they obsessed over the short-term price of gas, often imported on ships, that was urgently needed to replace the Russian methane no longer flowing through pipelines. Such experiences have left policy types wary of markets, which they naturally think of as fickle, “Anglo-Saxon”, and to be controlled. That is a shame: there is a great deal to learn from the signals coming from investors in anything from debt to currencies and much else besides. Politicians should listen.First, a caveat: the old curves whose signals they once heeded are no longer worth hourly scrutiny. Spreads between the bonds of southern countries and Germany are nowhere near the levels of the euro-zone panic these days. In some cases, such as Spain and Greece, it is because investors think the prospects for those economies have improved. In the case of Italy, however, there is still plenty of concern left over how it can repay an ever-larger debt pile, given a budget deficit of over 5% this year, and ho-hum growth prospects.