Roubini wrong about the eurozone break-up
Posted on 27 January 2010 with no comments from readers
New York University’s Nouriel Roubini has not had much luck with his pessimistic forecasts since correctly calling the sub-prime crisis. His repeated calls for the bear market rally in stocks to end are only just now being heeded by global financial markets.
Now he is launching a broadside against the European monetary union, telling Bloomberg that Spanish economic problems could be its undoing ‘down the line, not this year or in two years from now’.
At the moment Greece looks the more immediate problem nation with a 12 per cent budget deficit and debts due to exceed 120 per cent of GDP this year. However, European Central Bank president Jean-Claude Trichet said it is ‘absurd’ to imagine the break up of the 16-nation currency bloc.
Even the Greek central bank governor George Provopoulos said it will be ‘unequivocally easier to solve’ his country’s problems inside rather than outside the eurozone.
For Roubini to be proven right then nations like Greece and Spain would have to be ejected from the euro, something that is not even being considered or actually politically or legally possible. California might be running a big state deficit but that will not result in the biggest US state issuing its own currency. How could it?
More likely in the humble opinion of ArabianMoney is that other beleaguered European nations will eventually seek shelter under the euro umbrella. Recession-hit Britain would be a prime candidate if it was not for national pride and chauvinism. Joining the euro with the pound undervalued would be great real politique and excellent economics.
Austerity
What the eurozone nations in trouble – Spain, Portugal, Ireland and Greece – will have to face up to are cutbacks in public spending and higher taxation. They do not have much alternative.
Imagine how Greece would fare in issuing bonds in a new currency. Would anybody buy them except at fantastic interest rates? Even then it would be very risky given the Greek record for overspending and the potential for devaluation.
It is indeed absurd to talk about a break up of the eurozone, and perhaps only something that an American professor looking for a headline might come up with. Why does he not stick with his call for an end to the bear market rally, just as it is coming right?
no Comments posted by readers:
Roubini in line with A-E-P, great news. There some kind of local tropism at work here.
I appreciate your sensible UK-expat tone on financial matters. Thank you for the content of the blog that improves by the day.
An ex Roubini-reader (1986-1987)
This Roubini character, and other super pessimistics guys like him, are a depressed and, maniacs clicnically, lot mainly due to their early experiences in life.
For example, he was born and grow up in a real tiny minority in a country that his tribe, were, and are having a real tough time, even to this very day.
Therefore, his views reflect his deep deep scares from those days, hence all of his views must be viewed witha pinch of Salt and as areflection of many rejections that he had.
Indeed he was right on one count, but anybody with an O and/or, A-level qualification could spot the crisis way way before him, it was a crazy ride and some people made money but th emajority lost….THAT IS LIFE.