The euro crisis is far from over and the peripheral members of the euro zone should temporarily exit the currency bloc and get their financial houses in order, said a Pimco bond fund manager. Otherwise, current policies are ineffective in the absence of fiscal unity and will likely lead to a break-up of the euro.
In an interview with the German newspaper Die Welt, Munich-based Andrew Bosomworth warned that “market tensions” will persist into the new year and that the new “permanent bailout- mechanism” proposed by euro zone finance ministers has arrived too late since it will not become applied until 2013.
He cites that the European Union should have sought a more urgent solution to the problems of debt-stricken euro members.
Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments, he said. He suggested that these countries could begin fixing their financial and debt problems by re-adopting their original currencies, thereby enabling them to sell their exports cheaper to other countries.
Bosomworth also complains that by forcing weaker euro zone members to adopt harsh austerity programs defeats the purpose since they make it difficult for these nations to grow their economies and stabilize their debt.
Can countries inside a fixed exchange-rate system like the euro grow and tighten budget policy at the same time? I don't think so. It didn't work in Argentina, he noted.
Bosomworth also suggested that many bond investors have lost their faith in the sovereign debt of peripheral EU countries and are seeking to liquidate them faster than the European Central Bank can buy them, thereby pushing up the yields.