With Greece’s government on the brink of collapse, even the successful adoption of Prime Minister George Papandreou’s referendum on a debt deal leaves room for volatility and uncertainty in Europe for weeks, historian and author Niall Ferguson told CNBC Wednesday.
Even if Papandreou can engineer a short-term solution to Greece’s crisis, questions about the rest of Europe’s future remain. “People would then start asking questions about Portugal, Ireland, Span, and Italy. So this is not over and I think it’s going to run and run like one of those really awful Broadway shows everybody hates but just keeps running,” said Ferguson, author of the new book, “Civilization: The West and the Rest.”
“I think what happens next is another level of uncertainty and so weeks more of volatility,” said Ferguson, also a Harvard University history professor.
Weak Outlook for Europe
Ferguson said he’s not surprised the single-currency experiment for Europe isn’t working. In the late 19th century, there was a similar attempt to create a Latin monetary union, a French idea, he said.
“It fell apart for the same reason that this thing is proving so unstable. There was no fiscal dimension. It was a pure monetary union. And there was no central control and no mechanism for transferring resources from the core to the periphery in the even of big productivity differentials or fiscal problems.
“It is hard to have a monetary union if you don’t have any fiscal union. There is no automatic transfer of resources happening between say Germany and Greece. And every time the transfer has to happen it’s got to be negotiated and it takes the form of a bailout,” Ferguson said.
He added Europe could remain in crisis mode for years. “This is something which is going to, I think, prove tremendously disruptive to European economic development. Not just over a period of months but conceivably years,” Ferguson said.
Dismantling the single currency and leaving the euro union are difficult tasks. “It is clearly a suboptimal situation in which these countries in the periphery are in permanent recession,” he said.
China Downloads ‘Western Apps’
Meanwhile as Europe struggles, the East and in particular China have been able to thrive. “The good news is they’ve downloaded nearly all but not all of our killer applications,” said Ferguson, referring to six “killer apps” a minority of people had around 1500 AD that allowed the west to dominate the world.
“There is one thing that the Chinese have not done and that is download the app of private property rights, representative government, and the rule of law. That is clearly not there except in Hong Kong. In the mainland it’s not present.
“So we can hope that for China there is still a major problem of how to transition to a rule of law and representative government model,” said Ferguson.
The West has been unable keep the pace of the ascending East. “What I mind is that we’re kind of deleting them at the same time and it’s Western underperformance that really makes me hot under the collar,” said Ferguson.
“For people who sit around and say, ‘Oh, there will be a China crash.’ I think this is just wishful non-thinking. The more important thing is what we can do to reboot our system,” Ferguson said. So is America rebooting? “Well no is the short answer,” he said.
Washington and 2012
Ferguson also looked ahead to the 2012 U.S. election and President Barack Obama’s future. “This leader for all the promises that he brought into the White House with him is not delivering where it really counts. And that is the kind of structural reform of public finance that is necessary to restart this country’s economy,” Ferguson said.