Barry Eichengreen: An 'explosion' in Europe remains a real risk
The European Central Bank's bond-buying policy is a step in the right direction, says Professor Barry Eichengreen. But it could be too little, too late.
The University of California's Professor Barry Eichengreen was among the first to warn that monetary union in Europe would mean stronger countries having to prop up weaker ones, says Finanz und Wirtschaft. Eichengreen, an expert on the Great Depression and the gold standard, is still worried that the euro crisis could end messily.
The European Central Bank's willingness to buy peripheral debt, and discussions among policymakers about fiscal and banking union, are steps in the right direction, he says, but "the pace is too slow". There could be "an explosion" before the future of monetary union is secured.
A risk that many investors have overlooked is "the collapse of public support for, or at least public acquiescence to, the austerity policies required to work down heavy debt burdens", he says. Mass protests and growing support for the Greek neo-Nazi party are warning signs.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
If a "rejectionist" government emerges, the crisis could come to a head as the austerity programme would collapse and a default would look imminent. And there is still the danger of "contagion".
If Greece, the prime candidate for a euro exit, quits the currency, rattled savers in other peripheral states would move their money north and investors would panic about other countries going bust. That raises the prospect of collapsed banking systems and defaults beyond Greece as yields spiral.
For now, Greece will need another debt restructuring, while the whole zone would benefit from more stimulus from the European Central Bank, says Eichengreen. The Bank should tolerate a higher rate of inflation it would help wages and prices in the core to rise, thus closing the competitiveness gap between north and south, which is the root cause of the crisis.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
What is driving car insurance premium hikes?
Claim costs rather than insurer profits that are pushing up car insurance premiums, the City watchdog finds
-
Beware inheritance tax gifting rules – 220 families left with shock bills after error
Families can give away assets during their lifetime to reduce inheritance tax liabilities, but failing to meet gifting rules could trigger unexpected inheritance tax bills