Ex-ECB Chief Predicts Global Financial Crisis

Ex-ECB chief predicts global financial crisis, explaining that the preconditions of the 2008 financial crisis are very similar to the current conditions in the market. He notes that the new crisis could be even worse than that of 10 years ago.

4 September, AtoZ MarketsOne of the European top central bankers, Jean-Claude Trichet, has been serving as the head of the European Central Bank (ECB) in the period between 2003 and 2011. During his service, it happened that the world has seen the devastating 2008 financial crisis. In his latest public commentary, Jean-Claude Trichet has stated that the current conditions in the market could fuel the same crisis as 10 years ago. 

Ex-ECB Chief Predicts Global Financial Crisis

Specifically, he has stated that the amount of debt that is accumulated in the current financial market contributes to the overall vulnerability of the world’s financial system. The ex-banker has been quoted as saying:

“The growth in debt, especially private debt, in advanced countries has slowed, but this slowdown has been offset by an acceleration of emerging country debt.”

Jean-Claude Trichet has also highlighted that the current situation could become even worse than the financial crisis of 2008. He stated that there is an agreement that the excessive debt level in the developed economies appeared as a primary factor that caused a global financial crisis 10 years ago. Therefore, according to him, this is the same weak point of the markets that could potentially lead to a new economic crisis. 

Lehman Brothers Collapse and 2008 Financial Crisis

The ex-European Central Bank head has mentioned that he saw the first signs of the upcoming 2008 crisis just a year before it happened. Back in 2007, there happened an interruption of the EU money market. Jean-Claude Trichet stated:

“There was none of the usual business, no transactions between banks, no market interest rates.” 

He added that when EU banks were seeking for 95 billion EUR in liquidity to bring their economies back to stable position, the central bank has decided to provide the capital. Mr. Trichet also said that he and his ECB colleagues “were very much aware that we were looking at a completely systemic major global crisis” since the bankruptcy of Lehman Brothers.

Following the bankruptcy of Lehman Brothers, many of the market experts believed that it happened just as a market correction. Nobody actually expected it to emerge as “the detonator for the worst financial crisis since World War II.” 

Jean-Claude Trichet also argued that he told the US government that the collapse of Lehman Brothers would be a disaster. However, at the same time, he understood that the American authorities did not have an opportunity to intervene in the situation with public money. At that moment, the ex-ECB chief has prepared himself for devastating consequences. 

He added that he sees similar signs for this situation to happen now as well.

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