Europe must aim for full-blown unity which would see monetary and political union entwined with a currency union rivaling the United States, the U.K. and Japan, analysts told CNBC Wednesday.
Hans Redeker, Global Head of Foreign Exchange Strategy at Morgan Stanley told CNBC: “We need to aim for a united states of Europe.Then we would get a currency union like that of the States, the U.K. and Japan, it’s essential, otherwise this [bond-buying] plan will not gain credibility.”
He added that Mario Draghi, the European Central Bank (ECB) President who unveiled his bond-buying plan earlier this month, had understood the problem that Europe faced and that he had “needed to take this step”.
It was necessary to create a homogeneous bond market, he said.
The ECB program - known as Outright Monetary Transactions – would see the ECB buy up unlimited amounts of short-term bonds of a struggling country.
Some analysts considered it controversial. Critics have argued that the plan amounts to delaying a full solution to the euro zone debt crisis once again, and say it does not help in bringing about much-needed structural changes in certain euro zone countries.
Bob Janjuah, strategist at Nomura, said the plan was Draghi’s attempt to “further his own political agenda of a federal Europe” claiming the ECB was “attempting to orchestrate the grossest misallocation and mispricing of capital in the history of mankind.” Redeker admitted that the creation of a "United States" solution would be an uphill struggle because of the changes required to individual countries' constitutions.
Germany in particular would pose a challenge as it would see stiff opposition from politicians and the public alike to new EU-imposed rules to ensure budgetary discipline.
“In terms of the German constitution, we’ve reached the limit of the transfer of power from Berlin to Europe. We would need a change in the German constitution to get a change to political union in Europe,” he said.
The already strained relationship between Germany and the ECB took a further beating when Bundesbank chief Jens Weidmann, speaking at an event in Frankfurt to mark the 180th anniversary of Goethe’s death, likened the bond-buying plan to a Faustian pact with the devil.
In Goethe’s classic tale the devil convinces an emperor to print money which in turn leads to rampant inflation. (Read more: ECB Bond Buying Likened to Work of the Devil)
Declan Ganley, Chairman & CEO at Rivada Networks has been openly critical of European policy and policymakers in recent months and told CNBC that the analogy between Draghi and the devil was “appropriate.” “This comparison cuts right to the heart of the issue – there is acute awareness of the inflation risk of money printing.
The rules of capitalism have gone out of the window, money printing does not solve the problem and does not purge the insolvency,” he said.
He was, however, supportive of the idea of a european "federation of states" in which countries pool their sovereignty to ensure the viability of the euro.
He argued that European Commission President Jose Manuel Barroso’s call last week for a “federation of nation states” was a “courageous” move towards the political structure of Europe. (Read more: Europe Must Become Federation of States: EU's Barroso)
However, apart from the obvious technical issues involved in redrawing individual countries' constitutions to create an enlarged "super-state", critics argue it does nothing to resolve the core problems in the currency bloc.
Julian Callow, chief international economist at Barclays, told CNBC.com that it was unclear what the constitutional status of the euro zone would be if a cohesive single state were to be formed.
“This [federation of nation states] is likely to require a referendum and we’re starting to look at this possibility on the part of political leaders.
But we haven’t begun to take that step. The Draghi plan is unsustainable, it’s just buying time,” Callow said.
By CNBC's Shai Ahmed, follow her on Twitter @shaicnbc