European Nations ‘as Bad as Argentina’ in 2002

Many European governments’ finances are as risky as Argentina’s were at the height of its worst financial crisis, and the U.K. gives cause to be “extremely nervous,” Harvard University professor Niall Ferguson said.

“It is a myth that countries don’t go bust, you only have to look at the history of Latin America to see that they do,” Ferguson told Bloomberg Television today. “When you look at the financial position of many European countries today, especially east European countries but also some west European countries, it’s every bit as bad as Argentina was in 2002.”

The average euro region budget deficit will swell to 6.5 percent of output this year, more than double the European Union’s limit, the European Commission forecasts. In the U.K., Prime Minister Gordon Brown’s government predicts an annual shortfall almost twice that size because of the cost of bank bailouts and a slump in tax receipts from the recession.

“One has to be extremely nervous about the situation in the United Kingdom, borrowing on the same scale as the U.S. but without a reserve currency,” Ferguson said.

The U.K. Treasury predicts its deficit will reach 175 billion pounds ($287 billion) this fiscal year, or 12.4 percent of gross domestic product. The government plans to sell an unprecedented 220 billion pounds of debt to cover the shortfall and the cost of propping up banks.

Deficit Measures

In Eastern Europe, deficit-cutting measures are being imposed by international lenders as part of the price for more than $90 billion in aid doled out since September. Latvia may be preparing to run a deficit of 9.2 percent of GDP, the Baltic News Service reported today.

Measures taken by government officials in the U.S. and Europe to bail out banks have saddled the financial system with firms that ought to have collapsed, Ferguson said.

“We’ve got dinosaurs on life support at the moment in the form of major banks that only are alive because of massive capital injections and guarantees from taxpayers,” he said. “That’s inhibiting the process of evolution that ought to be creating new and better firms that ought to be taking the place of these failed firms.”

Argentina’s economy contracted 3.4 percent in 2002 in the aftermath of its $95 billion bond default. The peso lost two- thirds of its value while unemployment soared to a record 22 percent that year and the government imposed capital restrictions to stem outflows.

To contact the reporters on this story: Jennifer Ryan in London at; Rishaad Salamat in London at