Others Will Follow Greek Debt Tragedy: Niall Ferguson

The world debt overhang is threatening the world recovery, because markets will realize at some point how risky it is and the yields on bonds will increase, Niall Ferguson, professor of history at Harvard University, told CNBC Thursday.

Photo: World Economic Forum

"I think we have a situation where Greece is leading the pack but other countries will follow," Ferguson told "Squawk Box Europe."

The spread on 10-year Greek bond yields over the German Bunds, a measure of how risky markets see the country's debt, surged to a its highest level since Greece adopted the euro on Wednesday.

Greece's debt is forecast to balloon to more than 120 percent of gross domestic product this year.

Very few countries were able to cope with debt of over 100 percent of GDP in the past, and "the classic question is whether or not you default or try to inflate it away," Ferguson said.

The United States is in control of its currency and can print more to reduce its debt, but Greece and other countries in the euro cannot do this, therefore the cost of their debt will rise, he predicted.

This, in turn, will weigh on economic growth around the world, Ferguson added.

Spat with Krugman Continues

His well-known war of words with Princeton professor Paul Krugman over inflation showed no sign of abating.

Last year, Krugman criticized Ferguson's views as "depressing" and belonging to "the dark ages of economics."

- Watch the full interview with Niall Ferguson above.

"I sometimes think professor Krugman is from a dark age of his own" for his Keynesian view that stimuli should be used to save the world economy, Ferguson told CNBC.

In the wake of big financial crises, enormous debts can weigh down on the economy as a whole, and this is the danger for the Western world and Japan now, Ferguson argues.

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On the other hand, economies without the burden of government debt fare so much better, according to Ferguson.

"China is now the engine of growth in the world economy. It makes you realize how far global economic power is shifting from West to East," he said.