A decision by a new Greek government to leave the eurozone would set off devastating turmoil in financial markets even worse than the collapse of Lehman Brothers in 2008, a leading international economist warned Saturday.
A Greek exit would likely spark runs on Greek banks and the country’s stock market and end with the imposition of severe capital controls, said Barry Eichengreen, an economic historian at the University of California at Berkeley. He spoke as part of a panel discussion on the euro EURUSD, -0.57% crisis at the American Economic Association’s annual meeting.
The exit would also spill into other countries as investors speculate about which might be next to leave the currency union, he said.
“In the short run, it would be Lehman Brothers squared,” Eichengreen warned.
He predicted that European politicians would “swallow hard once again” and make the compromises necessary to keep Greece in the currency union.
“While holding the eurozone together will be costly and difficult and painful for the politicians, breaking it up will be even more costly and more difficult,” he said.