Tags: Roubini | Eurozone | Orderly

Roubini: Eurozone Will Crumble in Orderly Fashion

Friday, 13 January 2012 08:11 AM

The eurozone will break up but in an orderly fashion probably beginning in 2013, with troubled countries restructuring their debts then exiting the currency block one after the other, says New York University economist Nouriel Roubini.

"Over time, not this year, some of the member states are going to restructure their debts in an orderly and in some cases disorderly way and eventually starting with Greece, but potentially even other countries could exit the Eurozone," Roubini tells The Economic Times.

"I do not expect a breakup of the Eurozone in 2012, but if you take a horizon of the next three to five years, there is a meaningful probability that a number of the member states of the eurozone might eventually decide to exit the eurozone and eventually a breakup of the eurozone is going to occur."

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Some economists have said the breakup will be a messy affair, but Roubini says don't expect a sudden collapse.

"The eurozone crisis is not going to be a sudden wreck. It is going to be a slow-motion train wreck where initial economic difficulties, financials, fiscal then restructuring and eventually exit might occur. Separate countries will have difficulties at different points in time, Greece, Ireland, Portugal, Italy and Spain."

Some experts have warned that unless the European Central Bank eases up in its reluctance to buy government debt from banks issued by troubled countries, the currency group could collapse.

David Riley, the head of sovereign ratings for Fitch, says the central bank needs to consider stepping in and buy government debt directly from banks now, a process known as quantitative easing.

European Central Bank officials have refused to carry out such policies on the grounds that it would violate its mandate to keep inflation rates in check.

Riley warns, however, that not considering quantitative easing could mean the collapse of the currency zone.

"The end of the euro would be cataclysmic. The euro is a reserve currency," says Riley, according to Reuters.

"What would that do in terms of financial and political stability?"

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