Pimco says 'untenable' policies will lead to eurozone break-up

Pimco, the world’s largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course.

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Ambrose Evans-Pritchard
Telegraph

Andrew Bosomworth, head of Pimco’s portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.

“Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments,” he told German newspaper Die Welt.

He said these countries could rejoin EMU “after an appropriate debt restructuring”, adding that devaluation would let them export their way back to health.

Mr Bosomworth said EU leaders were too quick to congratulate themselves on saving the euro last week with a deal for a permanent bail-out fund from 2013.

“The euro crisis is not over by a long shot. Market tensions will continue into 2011. The mechanism comes far too late,” he said.

The bond fund argues that the EU strategy of forcing heavily indebted countries to undergo draconian fiscal austerity without offsetting stimulus is unworkable.

The austerity policies are stifling the growth needed to stabilise debt levels.

“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,” Mr Bosomworth said.

Pimco also gave warning that the bond vigilantes have lost faith in the policy and are trying to liquidate their holdings of peripheral EMU faster than the European Central Bank (ECB) can buy the debt, causing a relentless rise in yields, and a vicious circle.

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