Greece will be start of sovereign default domino effect, warns Ken Rogoff
The former chief economist of the International Monetary Fund has predicted "a bunch of sovereign defaults" in the next few years, and gave warning that Greece is likely to be the first domino of several to fall.
Professor Kenneth Rogoff, now a respected Harvard academic, also argued that substantial sovereign debt loads will force major global economies to tighten monetary policy, leading to further worldwide "shockwaves."
Prof Rogoff's vision of the world's governments weighed down with debt is not a new phenomenon.
"Greece is just the beginning," he said. "We usually see a bunch of sovereign defaults [in the years following a banking crisis]... I predict we will again. It's very hard to call the timing but it will happen."
As well as his time at the IMF – he was chief economist from 2001-2004 – Prof Rogoff is best known for predicting the collapse of a number of major banks in the summer of 2008, which came true with the implosion of Lehman Brothers, and the need for rescues of both Halifax Bank of Scotland and the Royal Bank of Scotland.
On Greece, Prof Rogoff expects the IMF – not the European Union – to eventually bail out of the Mediterranean nation. He said: "I don't think Europe's going to succeed."
He also takes a very dim view of the US's debt situation, saying the US "is in a state of paralysis in its fiscal policy". However, he believes America is more likely to tighten monetary policy ahead of spending cuts: "When they start tightening monetary policy even a little bit, it's going to send shockwaves through the system."
The majority of countries are now at a point where it would be wiser to "phase out fiscal stimulus," he said, "and start gradually tightening fiscal policy even if it meant some inflation."
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