Nouriel Roubini on Greece and the eurozone

Famous economist Nouriel Roubini said that there is a chance that Greece will not exit the eurozone in the near future although the bloc will need to transform into a transfer union to keep it.

Furthermore, Roubini commented that in order for Greece to be in the eurozone, there has to be a transfer union, a realization that the problems of the country are long-term and that it will take ten to twenty years to do the reform and austerity to stabilize Greece. He added that if anyone is willing to do such things for the sake of not splitting the euro zone, then Greece stands a chance.

Such words are a turning point for the pessimistic comments of Roubini, who back in July 2012 said that Greece would exit the eurozone in 2013.

According to the bearish economist, less that 50 per cent is the probability of a Greek exit.

That change over the summer as interest rates on Italian and Spanish sovereign bonds were extremely high. Mario Draghi, the president of the ECB promised to protect the euro, austerity was carried out by Greece, the eurozone approved its ESM  bailout facility and also the European Central Bank had a plan connected to conditional bond buying.  

Still, Nouriel thinks that a shift in Germany’s attitude was the clincher. He said that if Germany had realized that if there was a collapse of the euro, the damage and the loss would not be just for Greece and other countries but it would also be for it and as a creditor, it would see its government shoulder and financial institutions the burden of bankruptcy.

Roubini added that another factor is the upcoming election in Germany which will take place in 2013 and if Greece goes down, Cyprus will too which will lead to tensions with Turkey.

Dr. Doom, as Roubini is often called, is of the opinion that the bloc is focused mainly on austerity and that the eurozone has not made GDP demand and job creations its top priorities.

Moreover, he added that if things were in his hands, he would put off the fiscal austerity and do it more gradually.

Nouriel Roubini on the 2013 US economy

Famous economist Nouriel Roubini is of the opinion that the US growth will be barely 1.7 per cent in 2013, adding that there is a high probability for the USA going over the fiscal cliff. He also said that if this happens, the 2 sides will be forced to reach an agreement by the market reaction.

When asked about the USA, Nouriel said that in the long term he thinks that the U.S. fundamentals are much stronger than other countries but in the short term he thinks that the country will have another year of anemic economic growth.

 Moreover, Roubini said that he really thinks that there is a housing recovery, adding that despite this, those who are more optimistic on housing recovery will be proven wrong in 2013.

In terms of positiveness, Roubini pointed out a couple of things – a housing recovery, reshoring of manufacturing, revaluation of the shale gas and some job creation and the help of quantitative easing 3. Furthermore, he said that even if the USA avoids the fiscal cliff, a GDP of 1.4 per cent is expected and a 1.25 per cent drag on growth in a barely growing economy.

Roubini has also highlighted some problems and said that tax increases are vetoed by Republicans and entitlement reform is not wanted from the Democrats. Moreover, he talks about issues in the budget for 2013, a potential debt ceiling debate and another one about fiscal consolidation and another one about fundamental tax reform.

When Nouriel Roubini was asked whether he would accept a treasury secretary if President Barack Obama were to offer it, he said that Obama would not call on him. As a whole, Roubini said that he enjoyed being involved in politics for 2 years but not that he is a public intellectual he can provide input to debate.

Bearish Economist Nouriel Roubini Turns More Positive on Greece

Source: The Wall Street Journal
Greece may not leave the euro zone in the immediate future but the bloc will have to become a transfer union to keep it in, influential economist Nouriel Roubini said Wednesday in Berlin.
“To keep Greece in the euro zone, effectively you need a transfer union, you have to realize that the problems of Greece are long-term, it’s going to take 10 to 20 years to do the austerity and the reform to stabilize Greece and therefore you have to give money and you have to be patient,” Mr. Roubini said.
“If you’re willing to do that for the sake of keeping the euro zone together, whether it’s economic reasons or political or geo political or foreign policy then Greece has a chance.”
The words are an about-face for the bearish economist, who in July forecast that Greece would exit the euro by 2013.
The probability of a Grexit is still “meaningful,” but less than 50% these days, according to Mr. Roubini, who is known as “Dr. Doom” for predicting in 2006 the global economic crisis.
So what’s changed since the summer, when the interest rates on Spanish and Italian sovereign bonds were sky high? Greece carried out austerity, Mario Draghi – president of the European Central Bank – promised to do whatever it takes to preserve the euro, the euro-zone approved its European Stability Mechanism bailout facility, and the ECB came up with a plan for conditional bond buying on the secondary market.
But according to Mr. Roubini, the clincher was a shift in Germany’s attitude.
The German government has grasped that there can be no orderly exit of Greece from the currency union, Mr. Roubini told journalists after a speech at an IG Metall union event in Berlin.
“I think the Germans have realized that if there was a disorderly collapse of the euro zone, the loss and the damage would not be just for Greece, Ireland, Portugal, Italy, Spain — but also for Germany,” which, as a creditor of these countries, would see its own financial institutions and government shoulder the burden of a bankruptcy.
“A disorderly collapse of the euro zone is not in anybody’s interest,” he added.
A coming election in Germany 2013 is another factor, Mr. Roubini said, as well as political considerations like instability in the Balkans and Greek banks’ exposure to such countries. If Greece goes, Cyprus would follow, leading to tensions with Turkey.
So does goodwill from Germany mean the euro is saved? Not exactly.
Dr. Doom says the bloc is too focused on austerity (take note, Ms. Merkel) and he fears the euro zone hasn’t put job creation and GDP demand at the center of its policy debate, but rather more and more austerity.
Front-loading austerity – too much too soon – will only exacerbate the recession in periphery euro zone states.
“If I had to propose policies that change and restore growth, I would say we have to postpone the fiscal austerity in the periphery and do it more gradual, slower rather than faster, in countries like Germany where there is fiscal space, instead of doing fiscal austerity now, we have to postpone it and do fiscal stimulus and public investment,” the New York University economist said.
But for all that doom, Europe’s political will to keep Greece in the euro continues to surprise even the most hawkish of observers.

ROUBINI: Perfect Storm Or Not?

"The perfect storm is not my baseline scenario. My baseline scenario is one of low economic growth in advanced economies and recession in some of them, like the euro zone, like the U.K., like Japan but not recession in the U.S., slower economic growth in emerging markets; that’s the baseline. But there could be a situation in which you could have a perfect storm that would happen if there is a fiscal cliff in the United States that tips the US into a recession, if the euro zone crisis gets worse and there is an exit of Greece that is disorderly, if the landing of China becomes a hard landing of China, and four, if we really had a war in the Middle East between Israel and Iran and oil prices go to $200/barrel." Source: Bloomberg

Nouriel Roubini: Transmission trouble for QE3

The chairman of Roubini Global Economics, professor of economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics Nouriel Roubini shared his thoughts in Wall Street Journal that, QE3 reduces the tail risk of contraction but is unlikely to lead to a sustained recovery in the US. The US Federal Reserve’s decision to undertake a third round of quantitative easing, or QE3, has raised three important questions. Will QE3 jump-start the US’s anaemic economic growth? Will it lead to a persistent increase in risky assets, especially in the US and other global equity markets? Finally, will its effects on gross domestic product (GDP) growth and equity markets be similar or different?

Many now argue that QE3’s effect on risky assets should be as powerful, if not more so, than that of QE1, QE2, and “Operation Twist”, the Fed’s earlier bond-purchase programme. After all, while the previous rounds of US monetary easing have been associated with a persistent increase in equity prices, the size and duration of QE3 are more substantial. But, despite the Fed’s impressive commitment to aggressive monetary easing, its effects on the real economy and on US equities could well be smaller and more fleeting than those of previous QE rounds.

Consider, first, that the previous QE rounds came at times of much lower equity valuations and earnings. In March 2009, the S&P 500 index was down to 660, earnings per share (EPS) of US companies and banks had sunk to a financial-crisis low, and price/earnings ratios were in the single digits. Today, the S&P 500 is more than 100% higher (hovering near 1,430), the average EPS is close to $100, and P/E ratios are above 14. Even during QE2, in the summer of 2010, the S&P 500, P/E ratios, and EPS were much lower than they are today. If, as is likely, economic growth in the US remains anaemic in spite of QE3, top-line revenues and bottom-line earnings will turn south, with negative effects on equity valuations. Moreover, fiscal support is absent this time: QE1 and QE2 helped to prevent a deeper recession and avoid a double dip, respectively, because each was associated with a significant fiscal stimulus.

Even if the US avoids the full fiscal cliff of 4.5% of GDP that is looming at the end of the year, it is highly likely that a fiscal drag amounting to 1.5% of GDP will hit the economy in 2013. With the US economy currently growing at a 1.6% annual rate, a fiscal drag of even 1% implies near-stagnation in 2013, though a modest recovery in housing and manufacturing, together with QE3, should keep US growth at about its current level in 2013.

Nouriel Roubini about the world economy (part 2)

The world famous economist Nouriel Roubini shares his thoughts and views about the global economy and processes during the 2012 Pilosio Award.

Nouriel Roubini about the world economy (part 1)

The world famous economist Nouriel Roubini shares his view about the global economy during the 2012 Pilosio's International "Building The Peace" Award.

“Dr.Doom” is convinced that the euro zone will fail

It’s no coincidence that famous economics Nouriel Roubini is called "Dr. Doom" given his bold predictions for the future of economy. Moreover, almost every single economic forecast which he has made has proved to be accurate afterwards, so when Roubini predicts, his surroundings tend to listen. Even given aside the fact that Dr.Doom was prepared for and bet on QE3, he has predicted a "perfect storm" for the economy in 2013. Moreover, he was right about the debt crisis in Europe, the U.S. growth, the Chinese slowdown, and the military conflict in Iran, which all combined would lead, according to Roubini, lead to recession.

As far as Roubini is concerned, the national bloc is about to fail. He himself is of the opinion that quantitative easing is delaying the inevitable and that the massive debt crisis will soon affect the euro zone. Even though there have been multiple packaged which help countries like Spain, Greece and Italy, the euro crisis seems impossible to solve.

Roubini still thinks that the economics and markets, which are propped up by purchasing assets, will supper a contraction somewhere in the future. Given the fact that the investment guru Nouriel Roubini has been accurate for so many past predictions, the investors should be wary of the European nations which have earned failing grades.

Roubini: If Jobs Number Is Weak, the third round of quantitative easing on Its Way

American economist Nouriel Roubini expressed his pessimistic view about U.S. and explained that he expects a further round of quantitative easing from the Federal Reserve in December. The founder of Roubini Global Economics shared his point of view in an interview for CNBC and added that if today’s jobs number is ok then the Fed can wait to do QE3.

"Yet the economy is weak enough and the unemployment rate weak enough that the Fed is going to do QE3 eventually.", said Roubini.

As he accepted the Democratic Party’s nomination to seek a second term as President, Barak Obama asked for more time to help solve the U.S.’s economic problems. He insisted that the problems of slowing growth are solvable and it is just a matter of time things to go back to normal.

"By the fourth quarter, with the fiscal cliff coming and firms becoming more cautious, capital spending is slowing down and growth will be not even 2 percent," warned Roubini. "Job creation might be around 100,000 or slightly higher for the next few months, but there’s not going to be any significant reduction in the unemployment rate."

He argued that with gross domestic product (GDP) growth of around 1 percent to 2 percent, the fiscal drag may weigh down the economy and predicted growth of close to 2 percent for the third quarter. Roubini believes that it will then slow in the last three months of 2012.

"If you get the fiscal drag as growth slows, you’re close to zero growth next year", he said. "This implies that by December the Fed is going to do a third round of QE3."

Fiscal austerity should be much more gradual to prevent a disorderly outcome in the eurozone, believes Nouriel Roubini

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.