Wednesday 22 November 2017

Debt crisis: Barroso warns that eurozone collapse could trigger Great Depression II

European Commission boss Jose Manuel Barroso. Photo: Getty Images
European Commission boss Jose Manuel Barroso. Photo: Getty Images reporters

EUROPEAN Commission president Jose Manuel Barroso has warned of a crash that would instantly wipe out half of the value of Europe’s economy, while the head of the eurozone crisis fund said Italy "doesn't have much time to reassure the markets".

The collapse of the eurozone would cause a crash that would instantly wipe out half of the value of Europe’s economy, plunging the continent into a depression as deep as the 1930s slump, Mr Barroso said.

If the euro area of the 17 member states or the wider 27-country EU broke apart the estimated initial cost would be up to 50 per cent of European gross domestic product, he warned.

The result of such an economic shock would be emergence of extremism and divisions within Europe, the former Portuguese prime minister told his German audience.

“Just as the founding fathers had a vision of Europe after two devastating world wars, we must also now act with resilience and with vision towards a Europe that is strong but open,” he said. “Now is Germany’s time to show that it is fighting the cause of a strong, integrated and competitive Europe.”

A eurozone crash, the commission has predicted, would see €10 trillion wiped off the value of the European economy, a catastrophe that would send living standards plummeting to the levels of Latin America.

Meanwhile, Klaus Regling, the head of the eurozone crisis fund, has called on Italy to act swiftly to reassure markets about its financial and political stability.

“Italy doesn't have much time to reassure the markets. The country needs a functioning government as soon as possible,” he said.

Writing in the Financial Times today, respected economist Nouriel Roubini isn't too positive of Italy's chance of staying in the eurozone:

"Italy may, like other periphery countries, need to exit the euro and go back to a national currency, thus triggering an effective break-up of the eurozone... Italy and other illiquid, but solvent, sovereigns need a 'big bazooka' to prevent a run on their public debt. The trouble is, however, that there is no credible lender of last resort in the eurozone," he said.

Daily Telegraph international business editor Ambrose Evans-Pritchard warns today that a new recession threatens the globe as the debt crisis grows.

“Europe's escalating debt crisis has cast a black shadow over the world's fragile recovery, threatening to tip large parts of the global economy into a deep downturn and even outright recession.

“The OECD's index of leading indicators for China, India, Brazil, Canada, Britain and the eurozone have all tipped below the warning line of 100, with the pace of the decline in Europe exceeding the onset of the Great Contraction in early 2008.

“Professor Simon Johnson, a former chief economist at the IMF, rattled nerves earlier this week by warning the world is "looking straight into the face of a great depression".

“The grim data is coming thick and fast. Japan's machinery orders fell 8.2pc in September as the post-Fukushima rebound lost steam and the delayed effects of the super-strong yen began to bite. Export orders have been declining for eight months.”

European markets rose on opening today. FTSE 100 up 0.32pc to 5462.08. French CAC 40 up 0.30pc to 3074.17. German DAX up 0.43pc to 5892.99. Italian FTSE Mib up 0.82pc to 15342.88.

The yield on French ten-year bonds today was just under 3.5pc - against nearer 7pc for Italy, 2.2pc for the UK and 1.8pc for Germany - leaving the widest gap between Germany and France for 20 years.

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