Milburn: If I were the leader of Europe

Kames Capital's Phil Milburn said Greece should be forced to leave the euro and Portuguese and Irish defaults pushed through as he outlines his solutions for the eurozone debt crisis.

The manager of the £434m Kames UK High Yield Bond fund said he "genuinely" did not understand the deal that came out last week which he thinks only solved the symptoms of the crisis, not the cause.

Milburn said the main element of a solution would involve some transfer of wealth from the core (Germany) to the periphery and in order to do that Europe would need to endure some uncomfortable actions.

"Europe is solvable but there is no perfect way and some of the solutions are unpalatable," he said.

As a full fiscal union is unlikely, Milburn said, he is in favour of a temporary fiscal union which would involve the ECB caling upon the strength of the German economy to save the periphery.

"I know there is no such job but if I were the leader of Europe I would force through Greece's exit from the euro, force through a default of Ireland and Portugal - but with the right to access central debt if they sign up to certain rules - and I would tell the ECB to start printing money."

He added that legally it is not possible to force Greece to exit the euro but actions could be taken to make it so uncomfortable it will choose to leave.

"I personally think the central authorities should withhold any more funding from Greece until they choose to leave the euro. They do not have the mechanisms or the tax systems in place to be a part of it - they are simply not ready.

"They should be forced to leave as punishment for not trying to be a part of the club. They should be punished from an economic point of view. They have been subsidised over the last 20 to 30 years and now they are getting emotional, instead of trying to work it out themselves, as those subsidies are being reduced."

Although he acknowledges Ireland is the only one of the peripheral countries that has made any improvements, he would force through a default in Ireland and Portugal as their debts have reached an unsustainable level.

However, this would mean they did not have access to the market so Milburn suggested giving them access to a capped eurobond as long as they stick to strict rulings to keep their debt in check.

"These would include labour reforms and rulings to stop governments being proliferate with public spending and notching up more debt. They need to sign up to rigid budgets and if they sway away from it the central authorities will have the right to step in."

A capped eurobond would also be an option for Spain and Italy whilst Ireland could introduce a Brady Bond, Milburn said. For every Irish government bond, holders would receive one eurobond - which is backed by the eurozone nations - and one Irish Brady Bond. This would be very long dated, with a long coupon and once Ireland starts to generate enough cash it could begin to tender some of these, he said.

"There would effectively be no haircut in absolute sense but in net present value sense. It would show that Ireland are trying to do the right thing by their debtholders by giving their money back when they can."

After all of these measures are implemented, Milburn said, growth would be negatively impacted and in order to boost this the ECB would need to start to print money to avoid a European recession or even a depression.

"This crisis can be solved but there is no perfect way. Germany would have to transfer some wealth and the periphery would have to sign up to the loss of sovereignty."