Bloomberg News

Citigroup’s Buiter Sees Europe ‘Stumbling’ to Debt Solution

October 11, 2011

(Updates with additional comments starting in fourth paragraph.)

Oct. 11 (Bloomberg) -- Citigroup Inc. Chief Economist Willem Buiter said European leaders will eventually resolve the region’s sovereign-debt crisis by “stumbling” into a solution.

“I actually believe that despite everything, Europe will manage to solve this issue,” Buiter said in an interview with Michael McKee on Bloomberg Television’s “Inside Track” in New York today. “Not in an elegant, timely and proactive way, but stumbling into what they will undoubtedly call a ‘Grand Solution,’ one slice at a time.”

European Central Bank President Jean-Claude Trichet warned today that the crisis has reached a “systemic dimension” as political leaders argued over a solution. In postponing a summit of euro officials by five days to Oct. 23, European Union President Herman Van Rompuy yesterday sought extra time to get to grips with the crisis, which has propelled Greece to the brink of default and shaken world markets.

Trichet’s comments were a “belated recognition” that the crisis is a threat “not just to the European financial system, but to the global financial system,” Buiter said. “If not tackled soon, it could be very ugly indeed.”

Buiter, a former Bank of England policy maker, sees European leaders coming up with a plan that will involve recapitalizing banks and a “deep” debt restructuring for Greece by Oct. 23.

Restructuring

“Provided that Spain and Italy remain on their feet and can be ring-fenced effectively, the global banking system should not take a devastating hit from the inevitable restructuring in the smaller periphery countries and the banking recapitalization that will be going on soon,” he said.

Financial markets will “absolutely” be able to manage a Greek restructuring as investors have already priced it into assets, Buiter said. He also said Greece should have restructured as part of its bailout in May 2010 and that delays have “made things much worse than they need to be.”

“At the end of it, we’ll have a euro zone that has the minimal conditions in terms of fiscal discipline, restructuring insolvent sovereigns and insolvent banks, and recapitalizing systemically important financial institutions that it should have had right at the beginning,” Buiter said. “The euro area will be stronger, and before long, larger with new members.”

--Editors: Fergal O’Brien, Eddie Buckle

To contact the reporters on this story: Scott Hamilton in London at shamilton8@bloomberg.net; Michael McKee in New York at mmckee@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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