I would think it’s not too likely because the financial imbalances, household debt levels and property-price inflation in most countries are substantially lower than they were in 2007. That said, it’s not so much that things are necessarily stable but that the alarm bells are quieter compared to 2007. We can find various pockets where there are problems, including the British housing market and Chinese corporate debt, caused by their spectacular growth period.
And there are two big buts. The first is that global financial institutions, in particular the banking sector, are still structurally very fragile. The banks have capital-to-equity ratios – that's the ratio of the assets of a company to its equity (the amount invested by shareholders), used as an indicator of the company’s financial strength – of 5 or 6 per cent; for a non-financial corporation, people would be worried if they had less than 20 or 30 per cent. No bank would lend to institutions with their capital-to-equity ratios unless they were also banks, and therefore had an implicit government guarantee behind them. It means that if all their assets lost 6 per cent of value, literally all banks around the world would be bankrupt – and 6 per cent is not that big in the grand scheme of things.
The second is that governments are in a much weaker position if there is a problem, particularly in Europe. They are not very well positioned to inject demand or to make another big round of bank bailouts, so any problem could grow more quickly than it did in 2008.
So the likelihood of it occurring in the next two years, I would say, is not too high but if it happens it could be worse. Then, in the next 10 years or so there’s a high likelihood of there being another financial crash, because ultimately the system hasn’t been fixed.