Europe struggles to protect budgets

Sovereign debt restructuring could punch holes in eurozone state budgets following the bail-out of Ireland last week, spreading contagion across Europe.

“These professors say bondholders need to take a haircut. That is not how it works. There is a price to everything. The bondholders would just price it out,” he says.

He says the effect of a haircut on Ireland’s ability to maintain financial stability would be catastrophic.

“Punishing bondholders makes things worse, not better. Ireland still has to be able to access the market.”

Milburn adds that a haircut would aim to punish institutional bondholders. But he points out that institutions are running pension and savings money for investors, who would suffer the losses.

Milburn says he is avoiding peripheral EU nations completely in his £291m High Yield Bond fund and the £374m Strategic Bond Fund he co-manages with David Roberts.