GFC II looms if debt woes grow, UBS warns

GFC II looms if debt woes grow, UBS warns

STUART WASHINGTON
May 21, 2010 - 12:05PM

A European inability to contain its debt crisis would lead to ‘‘Global Financial Crisis No. 2’’, a senior economist has warned.

Scott Haslem, an economist with investment bank UBS, said today current instability suggested there were two potential paths for the global economy related to the debt crisis emanating from Europe.

One path was that fears surrounding European debt would continue to escalate, creating a lack of trust in global financial institutions resulting in what Mr Haslem termed ‘‘Global Financial Crisis No. 2’’.

But Mr Haslem said a more likely path would be that European leaders would meet the challenges posed by Greece’s current instability, partly because the consequences of failure would be so dire.

‘‘The most negative path is simply that the rise in risk and the dysfunction that is in Europe at the moment, if we can’t contain that in the European environment and it becomes a global financial crisis, then I think it’s going to be difficult days ahead,’’ he said.

‘‘I think the more likely scenario is that policy makers have walked this path before over the last couple of years ... and probably know a little bit more how to deal with these issues.

‘‘I think the more likely path is that we become more comfortable over the next couple of months that this is indeed likely to be contained to Europe and we re-join what we define as a fairly moderate, patchy economic recovery.’’

He made the remarks this morning ahead of the Australian S&P 200 as low as 3.2 per cent below its close yesterday.

swashington@smh.com.au

http://www.smh.com.au/business/gfc-ii-looms-if-debt-woes-grow-ubs-warns-20100521-vzub.html