LIVE MARKETS-Forget guns, Europe needs bonds - Lemanik

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FORGET GUNS, EUROPE NEEDS BONDS - LEMANIK

Europe is facing a "colossal historic opportunity" but its focus on rearmament could distract it from the reforms needed to avoid stagnation, according to Maurizio Novelli at Lemanik.

The fund manager argues that fiscal plans like the defence push are doomed to fade away, just as previous packages have. Their fiscal multiplier effect typically fizzles out in 12-18 months, making them ineffective for deep-rooted problems, he notes.

"True reform for the EU means creating a single capital market and issuing Eurobonds", he writes in a note.

He believes this would create a genuine competitor to U.S. Treasuries, attract foreign capital to fund infrastructure projects, and crucially, alleviate the "debt trap" afflicting countries like France, Italy, Greece and Portugal.

Novelli, however, isn't optimistic Europe will act without a crisis and warns of a growing conflict between expansive EU policies and the restrictive national budgets that must fund them.

"The real game changer isn't rearmament; it's implementing the Draghi plan, which centres on creating a capital market to challenge the dollar," he concludes, referring to measures proposed last year by former ECB chief Mario Draghi.

(Danilo Masoni)

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