“Europe has not yet had its financial crisis while America is still recovering from its crisis in 2008 according to Jim McCaughan, the CEO of Principal Global Investors.
“Europe’s debt crisis appears to be entering a more dangerous phase. If the EU and ECB continue pretending this is a liquidity crisis, they run the risk of allowing inadequate fiscal adjustment, particularly in Greece,” said McCaughan in an interview with CNBC on Monday.
“Debt levels are too high in the peripheral countries, so in the absence of rescheduling, or ‘re-profiling’ as it is now being called, there will need to be a continued large subsidy from the taxpayers in the strong economies,” he said.
If no one is actually going to leave the euro zone, debt restructuring remains the most likely way out of this crisis according to McCaughan, who refuses to take denials from EU policy makers at face value.
“The impact of rescheduling on the financial sector would be severe, with recapitalization of many banks being necessary. In a sense, Europe has not yet had its financial crisis, though the US is recovering from its own,” he said.
“Another new element is Spain, where there is increasing populist pressure against austerity, and house prices are not yet clearing in the market, remaining perhaps 20 percent above trend. So solvency issues for the banking system seem likely to hurt government finances further,” said McCaughan.
US to Outperform Europe”
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