Niall Ferguson Discusses the Possibility of European Bank Failures

By on October 26, 2011

Niall Ferguson - Harvard UniversityNiall Ferguson, a history professor at Harvard University, was interviewed by Margaret Brennan regarding the European sovereign-debt crisis.

Ferguson said European bureaucrats are scrambling for a solution to the sovereign-debt issue.  He added there are significant divisions between France and Germany and there are mounting problems, not only in Greece, but also in Spain and Italy.

Ferguson said he would be impressed if the officials came up with something the markets regard as adequate at their upcoming summit.

When Ms. Brennan brought up the problem of German defections, Ferguson characterized the government there as “very weak,” adding that he didn’t think there was a strong government in any euro zone country currently.

The key is the German Christian Democratic voter, according to Ferguson.  In the end this is about German taxpayers writing checks for southern Europeans, he said.  Their patience to continue with this is gone. Ferguson believes Merkel will win the vote because the opposition parties don’t want the blame for bringing down the euro zone.

Ferguson said the ECB will have to buy bonds, “print more aggressively,” than it has to date.  It may not be this month or next month, but Ferguson feels this is, “the only credible end game.”  He predicted this will lead to a significantly lower euro in the 6-month timeframe.

Ferguson is almost certain there will be almost global disappointment with what is revealed following the summit leading to all kinds of secondary consequences.  He mentioned the erratic commodity markets.

Ferguson said he was worried about a big European bank failing, mentioning the experience in 1931 when a European bank “blew up” during the Great Depression, leading to numerous German bank failures.  He added that this is probably what made the Great Depression great.

Ferguson said bank runs were possible and he wouldn’t feel comfortable having his money in an Italian bank.  He added that difficulties involving regulations involving the transfer of  money to banks in other countries have deterred bank runs from happening.

Ferguson continued the interview with his view on how a single currency can work  in Europe.  He explained how the Germans will need to have more power over the decision making process.

Ferguson concluded by discussing the role of Ireland and Portugal and the enormous size of the problem.

In an interview back in 2009 Ferguson said the deleveraging process had barely begun and we could be in store for a lost decade.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>