Euro Zone Faces Zero Growth, US Facing Trouble, Says Roubini
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.