Well, that’s what Kyle Bass is arguing. Does he have a point?
The most likely place would be Europe, because of the eurocrisis. This is rather ironic as the EU’s main rationale was keeping the peace after WOII by integrating the economies to such an extent to make war practically impossible, or so the thought (from Jean Monnet) was..
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Bass didn’t explicitly say it would be in Europe. However, he did say this:
I don’t know who’s going to fight who, but I’m fairly certain that in the next few years you will see wars erupt, and not just small ones [CNBC]
He bases this view on the high levels of debt in the world, by his calculations this has reached 340% of global output, and the world has never lived with these levels in peacetime. He also doesn’t expect the eurozone to survive in it’s present form so it’s fair to say that the eurozone is in the hot seat.
How realistic are these apocalyptic predictions? Well, there are a couple of mechanisms we can imagine that could spark conflict:
- These high levels of debt have to be restructured or monetized, the chance that these can be reduced through normal economic growth and/or austerity is rather slim. This sets up creditors against debtors.
- The main route through which countries, most notably in the eurozone periphery, have dealt with the high debt levels is through cutbacks in private (deleveraging) and public spending and tax hikes (austerity). But this has made matters worse, not better.
The latter point is especially important. Here is a scenario: Large parts of the population of a peripheral eurozone country don’t see any improvement, only worsening of their economic plight. Falling wages, rising unemployment and little hope of a turn-around any time soon. Sacrifices are reasonable as long as there is light at the end of the tunnel, but there is still very little of that in most eurozone peripheral countries. [Read on here]