Speaking at the World Economic Forum in Dalian, former Prime Minister Gordon Brown voiced his fears over the European debt crisis. Brown told an audience which was primarily Chinese that the euro will not be able to survive as it is now. It will need to be drastically reformed.
According to the former prime minister, the root of the problem is not a debt crisis but rather a banking crisis. He contends that the cause for this banking crisis is that they are undercapitalised and their liabilities are in much greater excess than the problems the Americans face.
In his talk, Brown emphasised a three point danger. He said that it isn’t just banking crisis but is also tied into growth and fiscal problems. He feels that a coordinated effort is needed on all three fronts in order to have an impact.
Further, he contends that by socialising the banking crisis in Europe, the problem has become a sovereign crisis. In other words, if banks face severe financial difficulties the government will now be forced to step in to sort out the crisis. This would then result in both governments and banks facing problems. It would be much more serious than any of the problems faced in the 2008 debt crisis.
In the end, the £385bn bailout fund of the European Financial Stability Facility would necessarily need many more resources if they were to be forced to cope with a crisis of that magnitude. He feels the International Monetary Fund needs to play a bigger role as it is quite apparent that Greece is most likely to default on their debt.
One of his suggestions was to persuade China to increase their consumption of imports from the region. This would have a significant impact on the economy and perhaps some relief to the debt crisis as well. However, he is not optimistic that steps will be taken in time to avoid a catastrophe of major proportions.
