Westpac's plain-speaking London economist James Shugg remains as gloomy about the global economy as he was over a year ago, when he said the Australian dollar could plunge to US80c and a break up of the eurozone would prompt a "global catastrophe".
Mr Shugg said yesterday he thought the renaissance of economic optimism this year was built on a mirage, a result of "quantitative easing" in Europe and Japan, rather than fundamental economic improvements. He suggested Greece, and potentially other European countries, were likely to default next year.
"I stand by every word of what I said in November 2011," he told The Australian from London.
At a Rockhampton, Queensland, conference in late 2011, Mr Shugg said he had never been so worried about the economic outlook in 25 years.
"I've started smoking; I can't get to sleep at night. Markets are freezing up and things are even worse than you are reading about," he reportedly said then.
Mr Shugg, who is still smoking, claims he was slightly misquoted, and had projected a global financial meltdown only if global creditors had not renegotiated Greece's severe debt repayment schedule, which they did early last year. "The European Central Bank has also put its big bazooka behind European banks since then, promising to lend unlimited amounts to banks at a discounted rate."
As global stockmarkets surge to new highs, Mr Shugg said: "There's still so much unjustified optimism out there; the fact is, we're in a sovereign debt crisis that will last for a decade."
Westpac's senior London economist, who grew up in Tasmania, said the required transfers required to keep Greece and Italy in the eurozone were so great that Germany would be better off leaving the grouping, even though its banks would need to be recapitalised at great cost.
"As we're seeing in Italy, people are voting out governments that harm their kids and their grannies," he said, suggesting people were "sick of austerity", which was undermining key social services.
Mr Shugg also suggested Europe was likely to be the trigger of future problems, but said the US was "living on life support".
"We have a situation where $US85 billion ($82.6bn) a month is being pumped into the US economy, interest rates are at record lows and the economy is only growing at 2 per cent," he said.
More broadly, he said global economic clout was shifting inexorably from the west to the east.
