The European debt crisis is not likely to be solved any time soon, because too many countries are "living beyond their means".

That is the view of Nicholas Gartside, head of global fixed income for asset management giant Schroders, who was in Bermuda last week to meet with clients and Schroders Bermuda staff.

The massive debts of Greece have attracted much attention, but many others, including Britain, have public finances in similarly shoddy condition.

nvestors, panicked by fears of a debt "contagion" spreading to other indebted Eurozone countries like Portugal, Ireland, Italy and Spain, have fled riskier asset classes, leading to steep falls in equity markets around the world.

Yesterday, Eurozone countries announced a $1 trillion emergency loan facility to support the euro, sparking a steep rise in global stock markets, but analysts said this would only buy time to tackle deep-seated fiscal problems (see page 25).

Schroders oversees the investment of assets for institutional customers including some Bermuda insurance companies.

Mr. Gartside said Schroders' own bond fund had no exposure to Greece and "very limited" exposure to Portugal and Spain.

"What we have seen is a broad transfer of debt from the private sector to the public sector," Mr. Gartside told The Royal Gazette last week.

"So it's changed from what started as a sub-prime crisis into a sovereign debt crisis. The bond markets are looking at all those developed western nations who are living beyond their means.

"The UK could be the next target. It has a big budget deficit at about 12 percent of GDP."

The protracted negotiations among Eurozone countries that finally resulted in a bailout for Greece showed up some cracks in the European Union, Mr. Gartside said. The very public reluctance of Germany, the biggest Eurozone economy, to come to the rescue of the Greeks showed how sovereign nations' interests could get in the way of a united front for single-currency policy.

Indebted countries faced three options - repaying the debt, defaulting, or inflating it away, Mr. Gartside said. "At a four percent inflation rate over 10 years, you would get rid of one third of the debt," he added. "The inflating way out is an attractive option.

"So there are three types of bond we believe can perform well in an environment in which we're likely to see rising interesting rates and rising inflation [EmDash] high-yield, emerging-markets debt and inflation-linked."

n many emerging market countries, debt to GDP ratio is falling [EmDash] the opposite of what is happening in most developed economies. At the same time, emerging market nations are offering higher yield on their bonds.

Mr. Gartside cited the example of Indonesia, which was offering 8.2 percent on a five-year bond, compared to around two percent for a US Treasury bond of a similar duration.

High-yield corporate bonds are another area where Mr. Gartside sees opportunities. Buying a corporate bond is effec tively the same as lending a company money, so the risks and rewards of each bond have to weighed up carefully. Default rates, which had climbed to more than 10 percent, would continue to decline towards two percent, as the global economy continued on the road to recovery, he added.

London-based Schroders managed almost $255 billion of assets, as at the end of March 2010. Its Bermuda unit employs around 25 people and has, over the past year, stepped up its efforts to gain business from the Island's insurance and reinsurance companies.