New York University professor Nouriel Roubini talks with Bloomberg Television’s Margaret Brennan about Europe’s debt crisis and the outlook for the sovereign relief package from the European Union.
Here are the key highlights from the interview, courtesy of Bloomberg Television:
On whether the sovereign crisis has stopped moving into a financial crisis:
“No. The problems have been just contained. The money, of course, helps, but all of these countries will have to do many sacrifices. They have to reduce sharply their budget deficits by raising taxes and cutting spending. That’s going to be politically hard. They have to restore competitiveness and economic growth by doing painful structural reforms. And while the trillion dollar kind of E.U. and IMF support package may help, all this money’s going to come with conditions and the market’s going to remain volatile and nervous as they see whether dollars are going to be credibly committed to do what’s necessary.
On Greece:
“They are starting to do the painful adjustments, but their budget deficit is 13.6 percent of GDP. It has to be reduced to three percent. There is talk of public debt is going to stabilize at 140 (ph) percent of GDP under the IMF program. Their output expected to fall for the next two years and you already have riots in the streets, people dying and strikes. And I think that the amount of pain is only going to increase and therefore markets and investors correctly are asking the question how much pain a country can take when you have to have fiscal austerity and the recession continues? It’s going to become politically challenging to do all these reforms and adjustments.
On the possibility of a global double dip recession:
“What I mean by it is that the kind of sovereign debt problem, deficits that are faced by Greece today are faced by many other countries in the Eurozone, by the U.K., by Japan, by United States. All these countries have budget deficits close to 10 percent of GDP and IMF is expecting the public debt is going to close to double to a level on average of 100 percent of GDP. So all of them are facing this tip of an iceberg of a sovereign debt problem that unless resolved can lead to a fiscal crisis. The crisis starts as a private sector debt to leverage. We put many of these private losses on the balance sheets of governments. And now there is this massive re-leveraging of the public sector that unless it’s addressed is going to lead to either default for some countries or those who can print money could lead to high and rising inflation.”
