European politicians need to take a strong lead next year to ensure investors regain confidence in the region, according to Julian Callow, Barclays Capital head of European economics.
The markets -- which have been on a roller coaster ride in 2011 -- want a decisive plan and political unity, Callow said. "Once you start to question [the political unity], you really undermine confidence in the euro," Callow told CNN. In the new year, the markets will be seeking clear statements about how the 17-country bloc will co-exist politically, he added.
His comments come after Britain's Prime Minister David Cameron vetoed a European Union treaty, which included new strict budgetary rules for eurozone members. The decision was applauded by Cameron's party but drew criticism from other sides at home including from his pro-European deputy, Liberal-Democrat leader Nick Clegg, amid fears Britain would be left isolated from the region's key financial decisions.
Callow said investors from the U.S. and Asia will not feel confident about Europe unless they know what the political structure will be. "To get that you will need to have a eurozone government, a eurozone parliament and that will take years to develop," said Callow. "It is a bit ironic that amidst all the summit talks we had, there was very little mention of the European Parliament."
Callow also believes the International Monetary Fund will play a significant role in the New Year. Callow picks out Italy as one country which will play a pivotal role in 2012. "If you can resolve the concerns that markets have concerning Italy, then I believe the concerns will dissipate significantly elsewhere," he said.
Callow argues the euro needs to drop in value against the US dollar, as was the case when the single currency being below parity in 2000. "Why shouldn't we go back there again? We are in an absolute political crisis," he said.
From Juliet Mann, CNN
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