Speaking during an interview on Bloomberg TV, noted historian and Bloomberg regular Niall Ferguson explained that the upcoming Greek elections could destroy what little stability is left in the 17-nation union and that eurozone leaders should prepare for their own “Lehman moment.”
“If there’s going to be a Lehman moment in the crisis, it’s going to be next week,” he said, adding that the “game of chicken” between Germany and Athens won’t end until Greece’s ruling party is decided.
It’s not clear who’s going to blink at this point. My guess is that, in the end, there will be a bit of blinking on both sides. This is the financial equivalent of the Cuban Missile Crisis. And the missile is really a bank run, which ultimately even the Germans can’t be completely immune to.
Not that there will ever be a run on German banks, but the effects of a bank run right across Southern Europe are going to be felt by the economy. German policymakers know that; they’re just having to say one thing to their own voters and another thing privately to other European leaders.
However, Ferguson believes that Greece will probably remain in the eurozone and that leaders might find some sort of common ground following the weekend elections. But that’s not to say that Ferguson has much faith in the EU’s financial structure, that is, in its central banks.
“In the end, the central banks can’t do this on their own,” Ferguson said, referring to Thursday’s central bank-fueled market rally.
“And I think for the markets to assume that this can be fixed by yet another round of quantitative easing or whatever you want to call it — LTRO [long-term refinancing operations] — I think that’s not realistic, because this is no longer just about liquidity. It’s about the solvency of governments, the solvency of banks,” he added.