Roubini: "I give the Euro three to six months"

New York economist-seer Nouriel Roubini (aka "Dr. Doom") predicted the global economic meltdown in 2008.  Now, in a gloomy interview in the Handelsblatt, he sees bad things happening to the Euro unless emergency pan-European measures are taken: 

 Europa hat aber doch keine Zeit mehr. Europa ist wie ein Auto, das auf eine Mauer zurast. Jetzt muss man abbiegen. Die Euro-Zone muss sich stärker integrieren. Das heißt: Fiskalunion mit gemeinsamer Schuldenlast wie Euro-Bonds, Bankenunion und gemeinsamer Einlagensicherung. Und: Es braucht eine Transferunion für Länder wie Griechenland. Es muss ein Wachstumspakt her, der die Wettbewerbsfähigkeit wiederherstellt. Immer weiter zu sparen würde die Rezession nur verschlimmern

(Europe has run out of time.  Europe is like a car that is racing headon into a wall. It needs to turn now.  The Euro-zone must be more tightly integrated.  That means a fiscal union with a common sharing of debt obligations such as Eurobonds, a union of the banks and a common deposit insurance. And: there needs to be a transfer union for countries like Greece.  There needs to a growth pact that restores competitiveness.  Just focusing on savings would make the recession much worse.)

Germans like to point their finger at the Greeks for their profligate ways and non-existant work ethic, but Roubini sees plenty of blame to go around:

Deutschland ist mitschuldig. Es wollte um jeden Preis seine Exporte absetzen, ob sich das Land diese leisten konnte oder nicht. Fahren Sie mal nach Griechenland, fast jeder Taxifahrer hat einen BMW oder Mercedes, brandneu, modern und schick, wie man sie sonst nur in New York und anderen reichen Städten sieht. Konnten sie sich die Fahrzeuge leisten? Nein. Das war ein System des Lieferkredits. Das funktionierte so lange, wie die Zinsen niedrig waren und die Märkte offen. Jeder Grieche konnte einen BMW kaufen. Aber braucht man den, um die Menschen in der Stadt herumzufahren? In New York haben wir die gelben Taxen, das sind keine BMWs. Aber solange ein Banker in Frankfurt ihnen das Geld lieh, haben sie sich die Autos gekauft. Wer trägt hier die Schuld, die Griechen oder Deutschen?

(Germany is also to blame. It wanted to sell its exports whether or not the country could pay for them.  Just go to Greece; practically every taxi driver has a BMW or a Mercedes, brand new, modern, fashionable - something you would normally just see in wealthy cities like New York.  Could they afford these cars?  No, it was just the supplier loans. And that worked well as long as the interest rates were low and the markets open.  But do you need these cars to drive people around town?  In New York we have Yellow Cabs - those aren't BMWs.  But as long as a banker in Frankfurt was willing to lend them money, they bought the cars.  So who's to blame here, the Greeks or the Germans.)

Roubini sees that Europe must find its own way out of the crisis.  Political paralysis prevents the United States from playing a constructive role.  And the US has its own fiscal problems.  In fact, Dr. Doom paints a "perfect storm" doomsday scenario:

Im nächsten Jahr kommt es vielleicht zum perfekten Sturm. Die Euro-Zone könnte sich auflösen, die USA die Fiskalklippe herunterfallen, Chinas Wachstum abrupt schwächer werden, wie schon in Brasilien oder Indien.

(We may have a perfect storm next year.  The Euro-zone could unravle, the US could fall off a fiscal cliff , and China's growth could weaken as has alreadry happened in Brazil or India.) 

 

Comments

[Joerg]

Regarding the quote in the headline:

Is Roubini what Friedman was for the Iraq war? From now on we can describe six month as "1 Friedman/Roubini".

From my summary of a Bergsten/Kierkegaard paper:
"Since 2010 many pundits and financial analysts have constantly proclaimed that EU leaders only have three months to save the Euro. The general mood and the outlook gets more and more pessimistic. Thus, the policy brief by Fred Bergsten and Jacob Funk Kirkegaard presents a welcome change of tune. The director and research fellow of the Peterson Institute for International Economics argue that many analysts and market gurus "have their own political and market positioning reasons for making such comments" and advise to "attach limited importance to them.""
http://www.atlantic-community.org/index/Global_Must_Read_Article/The_Coming_Resolution_of_the_Euro_Crisis_

Okay, Roubini was right in 2008. Was that a one time thing or his predictions rate good?

Anybody want to bet on the Roubini prediction? Well, I am not sure what exactly he means with "I give the Euro three to six months"

Will Greece leave the Euro by January 1, 2013? I think there is only 1/3 chance of that happening.

That would not be the end of the Euro...

I am willing to bet that the Euro will still be around in six month. Moreover, I think, Spain and Italy will still be in the Eurozone. Only if they would leave, it is justified to speak of the end of the euro. But that won't happen by January 1, 2013.

[David]

@Joerg,

To be sure, Roubini makes a nice living shouting "the sky is falling", but the crisis has exposed the fatal flaw that is at the heart of the Eurozone.

The question is: are countries in the Eurozone willing to relinquish economic sovereignty? Is Germany willing to support the issuance of Eurobonds?

It seems to me there a lack of political will across the continent.

[Joerg]

Germany should say "YES" to the second question (and I think Berlin will), when the first question has been answered positively as well.

It seems that the situation is not dire enough yet for the EU governments to make this bargain. They seem to be playing a game of chicken.

[Steve]

Regarding Greece Roubini is ignoring the fact that the Greek government was falsifying its deficit/borrowing figures by a factor of up to 2, and of course using much of the money to effectively bribe the voters, and that the Greeks were happy to get chaep credit until the time came to pay it back (and they have gotten a 100 billion writeoff also).

[Joerg]

"I give the Euro three to six months"

Time is up, but the Euro is still here.

I hope Roubini and his fans/colleagues put their money were their mouth was and lost a lot of money.

Alas, it seems Hedge Funds made again a lot of money in the last few days when Greece paid back debt at higher prices. Could that have been avoided, if our politicians had kept their mouthes shut?