Oct. 28 (Bloomberg) -- The European Union’s plan to stem the sovereign debt crisis will fall short, according to Andrew Bosomworth, a senior portfolio manager at Pacific Investment Management Co.
“So far, it appears that the measures will fail to address the root causes of the euro zone’s sovereign-debt problems,” Munich-based Bosomworth wrote in a research note received today by e-mail. “This piecemeal strategy by the euro zone’s leaders, one reactive policy slice at a time, is backfiring.”
European Union leaders meeting until the early hours of yesterday in Brussels agreed to boost the region’s rescue fund capacity to 1 trillion euros ($1.4 trillion), and persuaded holders of Greek bonds to accept a 50 percent writedown on the country’s debt.
“To reach equilibrium, we believe markets are signaling the Economic and Monetary Union’s leaders to choose one of two corner solutions: downsize to a smaller, stronger, homogenous group of countries or adopt a federation with political and fiscal union,” Bosomworth wrote.
“Jean-Claude Trichet hinted at the vision of fiscal union in his Charlemagne Speech in Aachen earlier this year,” he said. “Markets need orientation. Now more than ever is the opportunity to steer them by giving substance to that vision.”
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