The crisis in 2006 was more of a problem of too much debt and leverage of the private sector – households, banks, financial institutions and corporations. Now as a result of the response to the crisis-fiscal stimulus, bailing out banks and others we have a massive surge of public debt and deficits and now there’s a risk of countries as opposed to individuals or banks going belly up. Sovereign risk and the faltering economy have already happened in Greece. And unfortunately when you have too much private and public debt, it takes a long time – up to a decade to do de-leveraging –which means to spend less, to save more- to reduce debt over time, that implies slow economic growth, higher unemployment rate and some degree of social and political instability. So I would say we are still mid-stream. The slow economic growth if not outright recession in the eurozone, the risk of defaults by governments is going to stay with us for a number of years.

There’s certainly risk that the situation can become disorderly in the eurozone, like a disorderly default and exit by Greece, then contagion with a run on the banks in Italy and Spain when they lose market access, then they eventually have to restructure debts, and that’s not sufficient. They also exit the eurozone in which case the eurozone breaks up and this may lead to a European or a global turmoil, and then they may end up like Japan with a long-term stagnation if not another depression. It’s a risk all these things happening at the same time, which may be of still very low probability, but there’s a risk we have to concern for ourselves. There’s also a chance that Europeans get their act together. And while there will be a number of years of recession, bumpiness and fiscal condition, eventually we’ll have more integration, more of a fiscal union, more of a banking union, debt neutralization, political union, so instead the disintegration we will be moving towards a greater integration and eventually more stability for Europe and for global economy.

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