The time bomb of the debt of Covid could trigger a new financial crisis, warns Mervyn King

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The former governor of the Bank of England, Mervyn King, has warned that the world is facing a ticking time bomb linked to the debt of the coronavirus so that the country will borrow billions of pounds to combat the pandemic.Lord King, who led the Bank through the global financial crisis of 2008-2009 before retiring in 2013, said that the companies and countries could be swallowed up by the weight of their new loans – triggering a potentially new crisis smother any recovery.

The pair cross said Telegraph’The podcast Planet Normal, that you can listen on the audio player above, shows that the virus has hit a world economy made vulnerable by debt levels already high. The full interview can be read here.

He said: “I think the immediate concern that we will face over the next few years is that debt levels are very high with which we entered the crisis of Covid-19 will be exacerbated by debt levels even higher.

“So I think we can expect to see many defaults over the next few years as businesses are struggling and that many governments in various parts of the world, will also struggle to repay their debts. I think, therefore, that non-payment could trigger a new financial crisis along the way. ”

The current head of the Bank, Andrew Bailey – himself a protégé of the former governor has insisted on the fact that british banks are strong enough to both survive the crisis and maintain their loans, despite the epidemic having strengthened their reserves since the bailouts of taxpayers for 2008.

But Lord King said that the banks in Europe and China are “very fragile,” and warned that ” it is always risky to say that it is safe “. He added: “What seems to be initially small loss can easily multiply and grow”.

He said: “I think the banks will realize that they will suffer significant losses, not so much on the loans they have made since the crisis of Covid-19 has become evident, but on loans pre-existing, which seemed to be very safe when they were done, but now seem much more doubtful, given the challenges faced by many businesses, through no fault of their own, which have arisen as a result of Covid-19, and the responses that governments have made. ”

The comments of the peers are further to the warnings of the lobbying group TheCityUK in may, according to which british companies could take up to 105 billion pounds of unsustainable debt, including up to 20 billion pounds of loans through the loan programme for interruption of the activity of the coronavirus supported by the taxpayers.

Last year, officials of the Bank of England have warned against the so-called loans to leverage granted to companies at risk around the world, the governor of the time, Mark Carney, saying that the market of 14 billion us dollars (about 11.3 trillion pounds) had “all the characteristics” of the mortgage bubble to risk. triggered the financial crisis.

Lord King, a supporter of Brexit, has been added that the euro was another source of a potential crisis unless member countries agree to a fiscal union complete.

He said: “unless they take this path, the financial markets will always be doubtful that the euro will be guaranteed to stay together, and so it could be the emergence of new sovereign debt crises on the road. ”

Lord King has also referred to the central banks around the world to commit a “serious mistake” in responding to the crisis by a significant expansion of the printing of bank notes, which, according to him ” is not the answer to all of the causes of the slowdown of the economic growth “.

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