If you were able to look at Europe as a single country, Burnett explains that its current account deficit is in the region of 4% and its debt-to-GDP ratio is 86%. Putting this in context, UK’s debt-to-GDP is 61% (£940bn); in the US it is over 100%; in Germany it is around 60%.
He says the idea of a Eurobond “stacks up better” than in the UK or US.
“A eurobond has economic integrity and economically, it will bring about fiscal union in all but name. Political union is something very different,” he says, picking out a sizeable problem against the eurobond’s introduction – Germany.
Last week, the European Commission’s President José Manuel Barroso proposed the idea of a eurobond but, as Burnett points out, he has little clout over individual country’s politicians.
“The EC made these proposals during the crisis but they were ignored. It is individual politicians (i.e. those in Germany) that have to make the decision,” he argues.
In Germany there is actually a great deal of support for a eurobond but any support is from the opposition Social Democrat and Green parties as Chancellor Angela Merkel and her coalition government are set against it. Merkel’s recent regional Berlin election defeat may change this.
Gavin Haynes, investment director at Whitechurch Securities, is another supporter of the eurobond saying a resolution is needed that will help investor confidence to rise. He sees a eurobond as “key”, making him more bullish about the prospects in Europe.
The timing of any introduction depends on how long stress remains in the system, according to Burnett.
“If we see serious turmoil in the next two months, we may get an answer in the next two months. It needs pressure from the markets so could get an answer by the end of the year,” he says, adding: “But these same markets will react quicker than that. If policy is announced, markets will react immediately so even if it takes six months to implement, we will see an instant reaction.”
