Nouriel Roubini, the famous American economist believe, that the ability to backstop, ring-fence, and bail out banks and other financial institutions is constrained by politics and near-insolvent sovereigns’ inability to absorb additional losses from their banking systems. As a result, sovereign risk is now becoming banking risk, because sovereigns are dumping a larger fraction of their public debt onto banks’ balance sheet, especially in the eurozone.
Nouriel Roubini believes that in order to prevent a disorderly outcome in the eurozone, today’s fiscal austerity should be much more gradual, a growth compact should complement the EU’s new fiscal compact, and a fiscal union with debt mutualization - Eurobonds, should be implemented.
In addition, Roubini advices for a full banking union, starting with eurozone-wide deposit insurance, that should be initiated, and moves toward greater political integration must be considered, even as Greece leaves the eurozone.
In Roubini's opinion, it is Unfortunate, that Germany resists all of these key policy measures, as it is fixated on the credit risk to which its taxpayers would be exposed with greater economic, fiscal, and banking integration. As a result, the probability of a eurozone disaster is rising.
Nouriel Roubini is an American economist, chairman of Roubini Global Economics, an economic consultancy firm. He also teaches at New York University's Stern School of Business.
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