JERUSALEM, ISRAEL–Last week, Harvard professor Niall Ferguson argued that volatility induced by the Greek elections could cause a “Lehman moment” in Europe, a wave of bank runs that could lead to either the collapse or resurrection of the European Monetary Union.
While the events of this weekend do not seem to have caused this to happen, Feruguson still believes that the climax of pressures on Europe is yet to come.
“Essentially, Europe is trapped between the Articles of Confederation and the Declaration of Independence,” Ferguson explained at the Israeli Presidential Conference on Wednesday. “My opinion is that we get to the federal [union] but only after the European Lehman moment.”
He laid the blame for EU leaders’ unwillingness to submit to broader changes in the structure of their monetary union at the feet of one German Chancellor.
“It’s Angela Merkel who’s in denial about the problem of monetary union,” he said. “The only question you need to ask…is about the psychological nature of a German woman…I’m serious about this! Sometimes history boils down to the [ideology] of a single person.”
Unlike fellow panelist Martin Wolf, however, Ferguson took an optimistic view of the outcome of this economic disaster, which he argued will start with a series of bank runs. “The Germans pay either way. They pay if it breaks apart, they pay if it stays together” Ferguson said. “In the end they will flinch…it wont fall apart but it will come scarily close to doing so.”
“The only way out of this is federal institution,” he continued. “You start with something like deposit insurance to prevent bank runs in Greece and Spain,” and then embark on bank recapitalization and eventually end up with something like eurobonds.
While Ferguson noted that the likelihood of a federal Europe is still not immediate, he offered some insight into who might take its helm when such an entity does come about: “The one to watch is Radek Sikorski, the Polish Foreign Minister,” he said, lauding a speech Sikorski gave in November criticising Germany’s failure to assume an adequate leadership role in Europe. “If there’s going to be a President of a federal Euorpe, he gets my vote.”