Markets Are 'Overreacting' to Geopolitical Events: Economist

Markets are "overreacting" to the geopolitical events around the world, including the political unrest in North Africa and the Middle East, and troubles in Japan, said Willem Buiter, chief economist at Citi.

“Markets have moved from euphoria to fear, and this is clearly a fear-induced reaction,” Buiter told CNBC.

Buiter said worst-case scenarios for Japanand Libya are unlikely.

Unless Saudi [Arabia], UAE, Kuwait or Iran are affected, this is not quantitatively significant—all of Libya’s oil is less than 2 percent of the world’s daily production,” he noted.

“Brent oil’snow at $116 [a barrel] and the economy can live with that—we would have gotten there anyway, simply through demand growth, in a year or so.”

Instead, Buiter advised investors to watch the EU Summit later this week as the heads of states meet to readdress the European sovereign debt situation.

“If a deal can be struck with Ireland, the pot can be taken off the fire; but if it doesn’t…things could get nasty, because Ireland could unilaterally decide to restructure its bank debt and sovereign debt, which would cause a panic in European financial markets.”

Scorecard—What He Said:

  • Buiter's Previous Appearance on CNBC (Jul. 15, 2010)

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No immediate information was available for Buiter or his firm.