VIDEO: Niall Ferguson: euro was 'a terrible idea'
The euro may survive as Europe's common currency, but the European Union itself may well disintegrate as a result of the European debt crisis, one of the world's leading economic historians says.
Niall Ferguson told the CBC's Amanda Lang on Tuesday's The Lang & O'Leary Exchange that the problems facing Europe's economy are very dire.
Governments in Ireland, Greece, Portugal and Spain have already been rocked by unsustainable debt loads, leaving stronger countries such as Germany's to steady them. Even the major economies of France and Italy have shown signs of weakness in recent months, casting doubt on the continent's single currency, the euro.
In the interview, Harvard professor Ferguson said while the continent's leaders have shown "a pretty deplorable understanding of the problems they have," he thinks the euro will ultimately survive the crisis simply because there is no other option.
"I think they never should have created it — I think it was a terrible idea," he said. "But it's very difficult, now that they're in this mess, to dismantle the monetary union."
"They have to," he said, because there is no formal procedure to undo it. And if you create something without a formal exit strategy, the costs of dismantling it are incredibly high, Ferguson said.
For that reason alone, the euro is likely to survive. But he fears more for the European Union itself. There are 10 nations that are EU members that don't use the euro, chief among them being the United Kingdom, he notes. "I could imagine a situation in which decisions to save the euro are so unacceptable from the vantage point of London than Britain ends up leaving this thing."
Indeed, the situation in Europe is so dire that Ferguson sees parallels with the situation in the early 1930s, when bank failures and sovereign debt loads plunged the world into the very deepest part of the Great Depression.
He dismisses the notion that China, holder of 30 per cent of the world's currency reserves, will somehow swoop in to save the day. "China's leaders are very risk-averse," he notes. They committed small amounts of money into U.S. banks like Morgan Stanley during the 2008 crisis, and ended up losing money.
"The embarrassment that caused was immense," he said. "They feel very nervous about committing large-scale resources to any Western bailout."