Governments and private-sector partners may have to spend as much as $2 trillion to rescue Europe’s banks, said Laurence D. Fink, the chairman and chief executive officer of BlackRock Inc.
“Stabilizing Europe is very costly,” Fink, who heads the world’s largest asset manager, said Wednesday during an event in Toronto. “It could be as much as a couple trillion dollars.”
World equity markets have plunged over the past two months amid concern the European debt crisis is intensifying. The International Monetary Fund cut its forecast for global growth last month and predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal plan.
Fink said his firm has purchased equities this week including Morgan Stanley, after the MSCI All-Country World Index slumped 22 percent between May 2 and Sept. 30. BlackRock oversaw $3.66 trillion in assets as of June 30.
“The hysteria is so rampant now, it’s probably a good time to invest,” he said.
A European rescue program would be more of an investment opportunity than a bailout, Fink said Wednesday. On Sept. 14, he recommended a $1 trillion plan similar to the U.S. Troubled Asset Relief Program. He said Wednesday that he envisioned Europe needing an additional $1 trillion public-private partnership.
“It’s not lost money,” he said. “It’s no different than what the U.S. government did with TARP. In most cases, the U.S. got its money back.”
Greece is unlikely to leave the euro region, as returning to a single-country currency would be too disruptive to credit markets, Fink said.
“If there is a restructuring of the euro, it would be good countries leaving the euro and creating the ‘euro two,’ and all the other countries keeping the euro,” he said.
A solution to the European crisis will return the world’s attention to the U.S. and the lack of progress toward reducing the country’s budget deficit, Fink said. The failure of U.S. politicians to compromise on taxes and spending is leaving Americans too uncertain about the country’s future to return to the markets, he said.
Reducing the deficit will probably require less spending and increasing taxes or changing the tax code, he said.
Fink said he is pessimistic the Federal Reserve’s plan to buy longer-term debt, known as Operation Twist, will improve the economy.
“This program is really baffling me,” he said. “U.S. companies are sitting on trillions of dollars of cash. Lowering finance costs by 1 percent for 10-year money, I don’t see how that can stimulate the economy.”
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