Debt markets think the euro zone debt crisis is over and are “underpricing” the risks, Axel Weber, former head of the Bundesbank, Germany’s central bank, has warned.
“Markets, when they re-price, always overshoot. But at the moment, as they’re re-pricing to a normal situation, they’re also overshooting,” Weber, currently chairman of Swiss bank UBS, told CNBC in an interview at an International Monetary Fund meeting in Washington.
“The market is probably too benign on some of the developments in Europe. It’s pricing as if the problems were behind us, but what is behind us is the bad headlines, and the problems are still there,” he warned.
As worries about the euro zone debt crisis receded after European Central Bank president Mario Draghi pledged to do “whatever it takes” to save the euro, there has been a return to normality in the region. Greece, once viewed as a basket case and potentially the first country to leave the 18-country currency group, last week managed to raise money on the bond markets again.
However, growth is still stagnant in Europe and a host of economic and social problems of the crisis, such as high youth unemployment, remain.