"If things get out of hand in the euro area, no bank in the financial integrated world will stand," he told a parliamentary committee.
Mr Buiter, a former member of the Bank of England's Monetary Policy Committee, said the recapitalisation of banks and other systemically important institutions should be a priority in the region.
"If they don't, we are setting ourselves up for a financial crisis following the sovereign crisis," he said, giving evidence at a session of the House of Lords EU Economic and Financial Affairs Sub-Committee on the eurozone crisis.
Mr Buiter said he was not hopeful that "a grand plan, a grand design, [or] even a big bazooka for that matter" would emerge from the European leaders summit in Brussels on Sunday, or at the G20 summit in Cannes on November 3 and 4.
"There will be some progress, but very limited," he said. "It's going to take months, probably well in 2012, before we have clarity about how Spain and Italy will be ring-fenced, guaranteed funding, how the banks will be recapitalised and how much of them will end up being majority state owned - I expect a significant number of them."
The Telegraph
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