Political leaders ‘scared rigid’ of bank contagion, says chief economist

John Greenwood, the chief economist at Invesco Perpetual, says political leaders are “scared rigid” of a run on banks across Europe as Greece teeters on the brink of collapse.

John Greenwood
John Greenwood

Speaking at the Money Marketing Retirement Planning Summit in Turnberry, Scotland yesterday, Greenwood said it is inevitable Greece will default on its debt, either voluntarily or under pressure from other European countries.

Uncertainty continues to surround the future of Greece ahead of a general election in June. Prime Minister David Cameron recently said Greece needs to either accept austerity or leave the eurozone.

Greenwood said: “There are three possible solutions to the Euro crisis; Greece could unilaterally default and exit, the existing eurozone could be maintained or Europe could move to full fiscal union.

“The problem with the final two options is they do not address competitiveness or growth issues and they do not enable debt repayment.

“My view is that we will ultimately see a unilateral default by Greece, although it is not clear whether this will be voluntary or imposed by other eurozone members.

“One reason European leaders continue to cling on is they are scared rigid about contagion. We could well have a very major blow up this summer.”