Borg sees second financial crisis ahead

Finance Minister Anders Borg warned on Tuesday of the risk for a crisis in the real economy to come back and cause yet another financial crisis.

“It’s something I see as probable,” he said to journalists following a meeting with other European Union finance ministers in Brussels.

When rising unemployment, reduced economic activity, poor profitability and bankruptcies begin to interact, it will cause new problems for the financial sector, Borg estimates, with credit losses the most likely consequence.

“This really emphasizes that we need to implement powerful measures in order to restore stability in the banking system,” he said.

On Monday, the European Commission presented a dire forecast for the EU economy, projecting a 1.8 percent drop in GDP across the 27 EU member states in 2009.

The forecast also showed that 16 countries would likely breach EU rules governing the allowable size of a country’s public deficit.