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Jon Moulton: Stop central banks running economies

Tuesday, 3 Dec 2013 | 12:39 PM ET
Jon Moulton, chairman and founder of Better Capital Plc.
Jason Alden | Bloomberg | Getty Images
Jon Moulton, chairman and founder of Better Capital Plc.

The sooner central banks stop "running" the world's economies, the better for the future state of businesses and the financial markets, British veteran venture capitalist Jon Moulton told CNBC on Tuesday.

Moulton, the founder and managing partner of Better Capital, which invests in businesses requiring restructuring, was commenting on fears that stronger U.S. macroeconomic data would lead the Federal Reserve to begin tapering its massive bond purchases soon, driving markets lower.

"I think they (the markets) are rather odd, aren't they?" Moulton said. "We get good news so that means tapering so the markets go down. It's really sort of inverse logic... It gets quite confusing. The sooner the central banks stop running the economies, the better we'll all be."

(Read more: Why markets may be over-reacting to Fed tapering)

Moulton added that the low interest rate policies pursued by central banks had made it difficult for him to find struggling businesses to work with in the U.K. and Europe.

"Low interest rates, banks not willing to recognize problems, policies to avoid unemployment, policies to avoid adverse PR relations for the banks: these have driven down to very low levels (business) activity in the markets we play in," he said.

He continued: "The banks still own them (struggling businesses in the region), in some cases they own several hundred percent, because the debt's worth a great deal more than the business. But the banks can continue to hold them in a world which allows them to fund them at very low interest rates, and with abundant free credit from the central banks."

(Read more: Is it time to kill off UK's zombie companies?)

Moulton said that when central banks eventually raised interest rates, a lot of troubled companies in Europe that were holding back macroeconomic growth would be wiped out, as they were currently carrying far too much debt.

"The one great benefit of a recession is you get rid of the weak business models, the things that shouldn't survive, and you provide abundant resources for new businesses to get going. We haven't done that. We haven't cleaned the shop. We have weak businesses with no growth prospects in Europe," he said.

Europe's woes

Moulton argued that the European financial crisis was not over yet, and said that while some countries were "shouting" they were healthy, there was along way for them to go.

In particular, he highlighted Cyprus as a euro zone nation still facing "a lot of pain". His words came after Harris Georgiades, the finance minister of Cyprus, told CNBC that the country's situation was improving.

(Read more: Cyprus out of 'danger zone': Finance Minister)

Moulton said: "In the last 12 months they've seen 5.5 percent reduction in the size of their economy; their unemployment is somewhere around about 18 percent... They need quite a long period of intensive care to come out the other end.

"They probably will come out the other end but there's going to be a lot of pain between here and there and probably some depopulation of the island."

He also said that the more encouraging economic news from Italy and Spain did not mean these nations would experience strong growth in 2014. Neither economy had anything "remarkably strong going for it", he said, with Italy the more vulnerable of the two, given its public finances and political situation.

"It's had such a long period now of just not growing," Moulton said. "I mean over the last 20 years, what is it? Zimbabwe and Haiti have grown less than Italy. That's it. I find it very hard to be optimistic about Italy."




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