Investors should stay away from Europe, as in 2011 there is a danger the Euro system will put too much pressure on weaker countries and economies, John Redwood, chairman of Evercore Pan-Asset Capital Management, has warned.

Redwood said: “The truth is the EU has not worked out how to finance countries that have falling output and rising budget deficits. They have not thought through a recovery policy that can generate the growth they need.

"They have not decided how to make all banks super solvent so there are no more fears about them. Until they do these three things convincingly, Euroland will be subject to further market shocks. We advise investors to stay away from the area in the meanwhile.”

Redwood highlighted the problems with the Irish bail-out, which has had a “less than encouraging” market reaction. He explained: “With more spending cuts to come, high interest rates on the new borrowing, and a currency which Ireland can neither print nor devalue, some people worry that Ireland will not achieve the growth it needs to pay the interest and in due course to start paying off the debts.”

Irish debt has been downgraded to BAA1, which “showed the world is not yet persuaded that Ireland's finances are mended”, Redwood added.
Greece is another area of concern for Redwood as it had to renegotiate its May loan this November, to give more time to try to turn its declining economy round. Spain is likely to encounter problems in 2011, Redwood also warned, as five groups of Spanish savings banks were found to be weak in the EU’s latest banking stress tests.

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