The euro zone is facing a period of zero growth if not
recession, and the United States is heading for financial trouble,
U.S. economist Nouriel Roubini was quoted as saying on
Saturday.
There was a risk of renewed recession in Europe,
Roubini said in an interview with Swiss daily Tages-Anzeiger.
"There is that risk, at least for the euro zone. Growth
will fall toward zero. Even if that is perhaps not a real
recession, it will feel like one. Greece was just the tip of the
iceberg," he said.
"And the Americans too will run into the wall at some
point if the carry on the way they are," he said in the interview
published in German.
Roubini, known as Dr. Doom and best known for
predicting the U.S. housing crisis, said there was a risk of a
second financial crisis, with countries becoming insolvent and
being forced out of the euro, and banks collapsing.
Countries such as Spain and Greece were now under
pressure to cut spending and raise taxes to retain access to the
capital markets, even though they had no growth to speak of.
If governments implement austerity measures too soon
they risk snuffing out demand and recovery, but delays could
provoke a catastrophe with high interest burdens and inflation.
"You're damned if you save and you're damned if you
don't," he said.
Roubini said it was "possible to square this circle" if
governments committed to a credible medium-term plan to restore
their budgets.
But such policies, which carry the risk of a
deflationary recession, must be compensated for with a loose
pan-European monetary policy to stimulate demand.
Any resulting further decline in the euro would make
European exports more competitive and allow Germany to raise wages
and purchasing power at home to stimulate exports from other euro
zone countries, he said.
Roubini said that a Japanese-style period of deflation,
stagnation and high unemployment was a much greater risk to Europe
for the next two or three years than inflation.