Roubini: Euro Zone May Collapse Within Days

Posted by Dan Weil - MoneyNews

Share on Facebook

Tweet on Twitter

New York University economist Nouriel Roubini says the euro zone’s days may be numbered, and he’s not talking about some day far off in the future.

“In a few days, there might not be a euro zone for us to discuss,” he said at a Los Angeles conference sponsored by the Milken Institute, Reuters reports.

European policy makers may have to fork over 600 billion euros ($794 billion) in aid or buy government bonds to erase the debt crisis, economists tell Bloomberg.

Roubini says Greece can’t come up with the 10 percent spending reduction necessary to prevent its debt from exploding out of control.

And even if it could, its economy would get ruined in the process, he maintains.

Roubini compares Greece to Argentina in 2001, shortly before it defaulted on its debt.

Greece’s budget deficit, at 13.6 percent of GDP, is much higher than Argentina’s back then. Greece’s debt-to-GDP ratio and current account deficit also are much higher, Roubini points out.

The solution, Roubini says: a debt restructuring that reduces interest rates and extends maturities. In addition, Greece should exit the euro, he says.

Roubini’s not the only one calling for drastic measures.

“It may now be time for the euro area to do something much more dramatic in order to prevent the stress from creating another broad-based financial crisis which pushes the region back into recession.”David Mackie, chief European economist at JPMorgan, told Bloomberg.

Roubini: Debt Crisis Will Spark Defaults, Higher Inflation

April 30th/2010

The exploding government debt burden in nations ranging from Greece, to the United States, to Japan will end in government defaults or higher inflation, says New York University economist Nouriel Roubini.

“The bond vigilantes are walking out on Greece, Spain, Portugal, the U.K. and Iceland,” Roubini said at a recent conference, Bloomberg reports.

“Unfortunately in the U.S., the bond-market vigilantes are not walking out.”

Bond vigilantes are traders who sell bonds in markets where the country pursues lax fiscal and monetary policy.

“The thing I worry about is the buildup of sovereign debt,” Roubini said.

If the debt problems aren’t solved soon, nations will either default on their government debt or monetize them by printing money, which would create inflation, he maintains.

“Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems.”

The U.S. budget deficit totaled $1.4 trillion last year, and the Congressional Budget Office predicts the government debt burden will total 60 percent of GDP this year.

As for Greece, “It could eventually be forced to get out of the euro,” Roubini told Bloomberg.

But don’t expect the U.S. to intervene in Europe’s crisis, says Randall Stone, a political scientist at the University of Rochester.

“There’s a sense in the Obama administration that it’s Europe’s responsibility to straighten out problems in the euro zone,” he told The New York Times.