Tags: Nouriel | Roubini | Risk | Eurozone | Breakup | Fallen

Nouriel Roubini: Risk of Eurozone Breakup Has Fallen

Tuesday, 26 Jul 2011 08:45 AM

The risk of a breakup in the euro area is lower than a year ago, Nouriel Roubini, the economist who predicted the global financial crisis, said.

The likelihood of deflation and a double-dip recession in advanced economies has also fallen, Roubini, the co-founder and chairman of New York-based Roubini Global Economics LLC, said at a conference in Shanghai today.

“Those tail risks have a lower probability than they had a year ago,” Roubini said. The balance sheets “of high-grade corporations in the United States, in Europe, in Japan, let alone those in the emerging markets, are now very sound,” he said.

European Union leaders reached agreement on July 21 on a second rescue package for Greece worth 159 billion euros ($230 billion) and strengthened the region’s bailout mechanism to offer protection to other euro-region nations in a bid to stamp out contagion from the sovereign debt crisis. Spanish Prime Minister Jose Luis Rodriguez Zapatero said yesterday the accord is “solid and detailed.”

Roubini’s comments at a forum in the Chinese city today echoed a speech he gave in Bucharest on May 26 when he said risks to financial markets, including the breakup of the euro area, have lessened in the last year as growth has shifted from recovery to “expansion.”

Labor Costs Slashed

The London-based Centre for Economics and Business research said in a report last month that the euro area is on course to break up as member nations’ willingness to continue bailouts for the region’s indebted countries dissipates.

Companies took advantage of the global financial crisis to slash labor costs, Roubini, Professor of Economics at New York University’s Stern School of Business, said today.

“That has been painful,” he said. “But because of this cost restructuring, many of these corporations now are very productive. If they become more confident about the global economic recovery they do have the financial response to spend more.”

Still, the recovery in advanced economies will be “anemic” and U-shaped rather than V-shaped, he said. This recession is not a “traditional” recession, as it was caused by the financial crisis, he said. Spending needs to be reduced and savings raised for years, he added.

Roubini is among analysts who predicted the global financial crisis of 2007-2009 that was triggered by a collapse in the value of U.S. mortgage securities.

In July 2006 he predicted a “catastrophic” global financial meltdown that central bankers would be unable to prevent. The collapse of Lehman Brothers Holdings Inc. in 2008 sparked turmoil that led to the worst financial crisis since the 1930s.

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The risk of a breakup in the euro area is lower than a year ago, Nouriel Roubini, the economist who predicted the global financial crisis, said. The likelihood of deflation and a double-dip recession in advanced economies has also fallen, Roubini, the co-founder and...
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