Euro Zone Faces Zero Growth, US Facing Trouble,
Says Roubini
(Source: Reuters)
The euro zone is facing a period of zero growth if not
recession, and the United States is heading for financial
trouble, US economist Nouriel Roubini was quoted as saying on
Saturday.
Nouriel Roubini is Professor of Economics at the Stern
School of Business, New York University. He is also Co-Founder
and Chairman of Roubini Global Economics LLC, a
web-based economic and geostrategic information service and
economic consultancy. In addition, he has broad policy
experience in several positions in the US government.
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 they carry on the way they are."
Roubini, known as Dr Doom and best known for predicting
the US 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, are 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," Roubini said.
Roubini added that 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.