The Greek debt crisis is threatening to envelop all of Europe and markets around the world are growing increasingly jittery over potentially nightmarish repercussions, according to David Karsbol, the chief economist for Copenhagen-based Saxo Bank and a renowned forecaster. Mr Karsbol, known for his provocative but often accurate predictions, published a research note yesterday entitled "Nightmare Scenario Moving Closer".
In it, he argued that European policymakers must act swiftly and decisively in order to sidestep disastrous consequences. "If no dramatic financial austerity programmes are implemented, this crisis will spread and grow," Mr Karsbol wrote. And he does not believe more bailouts are the answer. "The fundamental problem is too much debt and it matters little if it is owned by the government or private sector." Mr Karsbol was in Dubai last month making much the same argument.
At a time when some of his peers in the forecasting game were making the case for an imminent bounce coming out the financial crisis, he thought otherwise. "This is not a V-shaped recovery," he said. "It is very flat." He repeated the position he has taken for the past two years: the global economy simply remains bloated with too much debt. Mr Karsbol was among the first to warn of the drastic implications of Iceland's enormous debt.
He also releases an annual "Black Swan" list of potential, if unlikely, scenarios for the global economy in the year ahead. His largely bearish list for this year included several items that have come to pass: he essentially anticipated the rise of the Tea Party movement in the US - organised protests against the government bailout of US companies - but even he did not foresee the dramatic fallout from Greece's problems.
But now that they are here, Mr Karsbol is warning of a treacherous path ahead. While conceding that the Greek bailout is necessary, he called it "a quick and dirty fix of a severe and very current problem". The important thing, he argued, was that European leaders should not consider Greece as an isolated case, nor should they send the signal that further bailouts were available for countries such as Portugal, Italy and Spain. The only solution is a painful one, in his opinion.
That perspective may not be popular on the streets of Madrid or Lisbon, but Mr Karsbol says policymakers have two options: one, stop the bailouts and restore fiscal and monetary discipline to lead to eventual recovery in two years at the earliest; or, two, continue to rely on bailouts and see "a grinding halt of economic activity in southern Europe" and long-term negative effects for the entire European economy.
Mr Karsbol concluded: "Unfortunately, we believe that the latter option carries the higher likelihood." firstname.lastname@example.org