The assumption that European governments will never do something like the US allowing Lehman Brothers to fail in September 2008 is trumped by the fiscal reality, Niall Ferguson, Harvard University professor and author, told CNBC Tuesday.
Spain has been lobbying the European Central Bank (ECB) not to put an end to its 442 billion euros ($542 billion) funding program this week, but a central bank official said the ECB will make sure the process will go as smoothly as possible.
"I've been nervous about European banks for quite a long time," Ferguson said in an interview.
He added that he was "amazed" about how long it took markets to realize that there was a problem with European banks, which were more leveraged than US banks, and that the assumption had always been that European governments would never do something like the US did in the case of Lehman.
"But that assumed that European governments had very deep pockets… the Greek crisis revealed the limit of this largesse," Ferguson said.
"I've just been in Athens and I pointed out there was no bailout of Greece, there was a bailout of German banks," he added.
Economist Nouriel Roubini told CNBC Monday that a double dip was very likely in the euro zone and this would affect the US economy and spark a further correction in stocks.
Greek-Style Crisis for US?
"Right now the picture is definitely bleaker in Europe than it is in the US," Ferguson said.
Roubini also said he did not foresee a double-dip recession for the US but economic growth will be sluggish.
"I agree with Nouriel on this, it's not as if the US economy will contract, it will grow at a slower rate," Ferguson said.
The European Union is a "huge" trading partner for the US and the fact that it is heading for a double-dip is "worrisome," he added.
But over the longer term, the US is likely to be faced with tough measures to cut the deficit, he said.
"The macroeconomic situation of the US this year is clearly better … but if you project ahead a few years, the fiscal situation of the US is absolutely horrendous," Ferguson said.
At this point, most players in the financial markets find it "incredible" that the US could get into a Greek-style crisis "but guess what, it could," he added.
However, the situation today is not as bleak as described by Princeton University Professor Paul Krugman, who recently wrote in a New York Times column that we are in the early stages of a third depression.
"With all this talk of great depression from Professor Krugman, I'd like to check with you guys that there are no shanty towns in Central Park in New York," Ferguson said.
"People like Krugman living in glass towers at the New York Times or Princeton University need to understand that deficits do matter," he said about Krugman's criticism of austerity measures, speaking later to CNBC India.