Snowden, manager of Kames Capital’s Investment Grade Global Bond and Absolute Return funds, suggests that six months ago introducing a eurobond would have “absolutely” been able to fix the problem but this is no longer the case.
“Now we are in a situation where if we do have a eurobond the market, instead of looking at it optimistically, we look at it knowing even Germany has a debt-to-GDP ratio of over 80% so is simply not strong enough to support the weak men of Europe,” he says. “I don’t believe today, because fear has set in so deeply, that a eurobond will be enough.”
Snowden is realistic about the severity of the continent’s debt problems and equally as realistic about the difficulties of introducing quantitative easing.
“Nothing short of QE will work. There is a solution but I suspect that QE, the printing of money by the European Central Bank, is such an anti-Northern Europe philosophy it will need substantially lower asset prices or a run on continental European banks before there is a moment of clarity that there is a lesser of two evils and at that point QE will be unfurled.”
At a recent meeting Snowden was told by “a gentleman from the continent” that he has “a very Anglo Saxon way of thinking about things.” This not only cemented his bearish view on the world but also encouraged his opinion that just because QE works in the UK and the US doesn’t automatically mean it will work in Europe.
There is still much against QE – such as the memory of Germany’s neighbours about what happened last time it set the printing presses rolling in the 1902s and 1930s – but he says it is within the wit of Western European politicians to do.
The timing of introducing QE is vital and the time is not right just now. The first thing that must be done, he argues, is for Greece, Italy, Spain et al to carry out their own reforms in-house before benefitting from any outside help.
“It is easy for me to sit here and say QE is the way out but you will just delay the inevitable if you roll it out now. You need the structural reforms, you need Mario Monti [Italy’s Prime Minister] and the unelected officials to force through those structural reforms before you can help them. People have to help themselves first.
“It is a huge game of chicken but regrettably we have got to the point where instead of holding people’s feet closer to the fire, in some cases they have to be stuck in the fire before reforms will come.”
