Milken Institute
- Lara Warner, the group chief risk officer for Credit Suisse, said risks to Europe's economy and stock markets are rising and options for dealing with a crisis are limited.
- Warner says Europe's markets are "fragile" and unexpected election results or other surprises could have huge consequences.
- Experts including Warner and Scott Minerd of Guggenheim Investments said the European Central Bank may not be able to help if the regional economy gets worse.
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Lara Warner, the group chief risk officer for Credit Suisse, warned that Europe's economy is teetering on the brink and could suffer a disastrous downturn.
"I do worry that we are in a period where small earthquakes can lead to large tsunamis," she said during a panel discussion at the Milken Institute Global Conference. "It seems to be the place that is the most fragile."
While European stocks have rallied this year - with some major national indexes beating the S&P 500 in 2019 - the European economy looks worse and worse.
It's already facing big challenges including short recessions in Germany and Italy. Italy also faces political instability, questions about the health of its banks, and rising tensions with Europe about its debt, all of which throw its growth prospects into question. Meanwhile there's no end in sight to Brexit.
Experts don't expect the continental economy to tip into a recession, but Warner and other experts say they're worried about how vulnerable the region looks.
"It's highly likely with the number of elections coming over the next year or so that we will see some shocks," she said.
If those weak points and threats weren't enough, Warner doubts the European Central Bank will be able to do anything to avert a bigger economic crisis if one develops because interest rates are already at zero and the bank is already attempting to stimulate the regional economy.
"There really is no more monetary policy option for Europe, and fiscal options, frankly," said Warner, whose firm manages $394 billion in assets.
"They're out of bullets, or they're very close," said Scott Minerd, global chief investment officer for Guggenheim Partners, which manages $265 billion in assets.
David Hunt, the president and CEO of Prudential's $1.16 trillion investment management business PGIM, agreed with Warner that Europe isn't prepared for another economic downturn. And he doubts that it will get its act together in time.
"The EU has not yet completely harmonized their approach to banking and reform," Hunt said. "There are some very clear things that Europe needs to do to get ready to the next turn" in the economic cycle.
Minerd said the European Union either needs to achieve a much greater level of fiscal unification than it has before, or it needs to scale down its ambitions and become a customs union instead of a multinational government.
Either way, he said Europe's authorities and voters are going to have to answer some fundamental problems in order to deal with the challenges Warner and others pointed out.
"The European experiment is in great danger," he said. "Is it going to retreat or is it going to go forward? Staying where it is is not a long term solution."