69 COURTING DISASTER
THE SITUATION IN EUROPE
What would be the consequences of a Brexit? And what other risks could contribute to a destabilising financial situation? Luca Visentini: “It is likely that if Britain gets out of the European Union, there will be a domino effect on other European countries. It is very unpredictable. Of course, the refugee crisis is also an element in this scenario. But if Europe collapses, everything is finished. You could have an incredible economic war taking place on a global level, if not even a real war.” Mari Kiviniemi: “When you think of political risks, Brexit is one of them. In the whole of Europe you can feel that Greece is still a challenge. In many EU countries it is difficult to form a government that has a stable majority. What is needed in Europe is a deepening of the single market and I don’t see a lot of support for that. That makes the situation in Europe very challenging.”
CHINA
One of the fastest-growing economies in the world is showing signs of weakness. Will the situation in China spiral out of control? Mari Kiviniemi: “We can see that China is making the shift from a manufacturing economy to a service economy, and it’s taking some time. That is a challenge for them and there is still this fear that this transition will cause turmoil not only in their area but also in the global situation.” Kathy Matsui: "The Chinese government has to balance competing interests: on the one hand they know that the debt burden is too high, but on the other hand, the economy is naturally transitioning from an export and investment-led economy to a more domestic, demand-led one. That transition means growth will slow, so you have high debt and slower growth. If they reduce debt too quickly, it could slow growth even further, which could be destabilising. Managing this transition is the challenge. We believe, however, that China will be able to manage the process through a bumpy deceleration, rather than cause a hard landing.”