http://www.reuters.com/article/idUSTRE6541DW20100605The euro zone is facing a period of zero growth if not recession, and the United States is heading for financial trouble, U.S. economist Nouriel Roubini was quoted as saying on Saturday.
There was a risk of renewed recession in Europe, Roubini said in an interview with Swiss daily Tages-Anzeiger.
"There is that risk, at least for the euro zone. Growth will fall toward zero. Even if that is perhaps not a real recession, it will feel like one. Greece was just the tip of the iceberg," he said.
"And the Americans too will run into the wall at some point if the carry on the way they are," he said in the interview published in German.
Roubini, known as Dr. Doom and best known for predicting the U.S. housing crisis, said there was a risk of a second financial crisis, with countries becoming insolvent and being forced out of the euro, and banks collapsing.
Countries such as Spain and Greece were now under pressure to cut spending and raise taxes to retain access to the capital markets, even though they had no growth to speak of.
If governments implement austerity measures too soon they risk snuffing out demand and recovery, but delays could provoke a catastrophe with high interest burdens and inflation.
"You're damned if you save and you're damned if you don't," he said.
Roubini said it was "possible to square this circle" if governments committed to a credible medium-term plan to restore their budgets.
But such policies, which carry the risk of a deflationary recession, must be compensated for with a loose pan-European monetary policy to stimulate demand.
Any resulting further decline in the euro would make European exports more competitive and allow Germany to raise wages and purchasing power at home to stimulate exports from other euro zone countries, he said.
Roubini said that a Japanese-style period of deflation, stagnation and high unemployment was a much greater risk to Europe for the next two or three years than inflation.
http://www.upi.com/Top_News/International/2010/06/05/Russia-says-euro-must-be-stabilized/UPI-47431275767862/MESEBERG, Germany, June 5 (UPI) -- Russia's president says Europe needs to stabilize the euro or face the possibility of a financial crisis
worse than the 2008 recession.
Dmitry Medvedev made the remarks in Meseberg, Germany, RIA Novosti reported Saturday.
"This is important for the European zone," Medvedev said, "and for its partners, such as Russia, and for the world financial system because if one pulls out leg in a form of euro from the global financial system, I am afraid consequences will be worse than the crisis in 2008."
The euro has sunk to its lowest rate against the dollar in four years amid fears a European debt crisis could slow economic growth in the region, RIA Novosti said.
"We really have very serious trade relations with the EU (and) many of our people keep their savings in euro," Medvedev said. "We are not indifferent to the European invention's destiny."
http://www.telegraph.co.uk/finance/financetopics/budget/7806064/Euro-will-be-dead-in-five-years.htmlEuro 'will be dead in five years'
The euro will have broken up before the end of this Parliamentary term, according to the bulk of economists (people much smarter than XO) taking part in a wide-ranging economic survey for The Sunday Telegraph.
The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion in the City since the election. The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office.
Of the 25 leading City economists who took part in the Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. Five declared themselves undecided. The finding is only one of a number of remarkable conclusions, including that:
• The economy will grow by well over a percentage point less next year than the Budget predicted in March.
• The Government will borrow almost £10bn less next year than the Treasury previously forecast, despite this weaker growth.
• Just as many economists think the Bank of England will not raise rates until 2012 or later as think it will lift borrowing costs this year.
But the conclusion on the euro is perhaps the most remarkable finding. A year ago or less, few within the City would have confidently predicted the currency's demise. But the travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor Angela Merkel's acknowledgement that the currency is facing an "existential crisis", have radically shifted opinion.
Two of the eight experts who predicted that the currency would survive said it would do so only at the cost of seeing at least one of its members default on its sovereign debt. Andrew Lilico, chief economist at think tank Policy Exchange, said there was "nearly zero chance" of the euro surviving with its current membership, adding: "Greece will certainly default on its debts, and it is an open question whether Greece will experience some form of revolution or coup – I'd put the likelihood of that over the next five years as around one in four."
Douglas McWilliams of the Centre for Economics and Business Research said the single currency "may not even survive the next week", while David Blanchflower, professor at Dartmouth College and former Bank of England policymaker, added: "The political implications [of euro disintegration] are likely to be far-reaching – Germans are opposed to paying for others and may well quit."
Four of the economists said that despite the wider suspicion that Greece or some of the weaker economies may be forced out of the currency, the most likely country to leave would be Germany.
Peter Warburton of consultancy Economic Perspectives said: "Possibly Germany will leave. Possibly other central and eastern European countries – plus Denmark – will have joined. Possibly, there will be a multi-tier membership of the EU and a mechanism for entering and leaving the single currency. I think the project will survive, but not in its current form."
Tim Congdon of International Monetary Research said: "The eurozone will lose three or four members e_SEnDGreece, Portugal, maybe Ireland e_SEnD and could break up altogether because of the growing friction between France and Germany."
The recent worries about the euro's fate followed the creation last month of a $1 trillion (£691bn) bail-out fund to prevent future collapses. Although the fund boosted confidence initially, investors abandoned the euro after politicians showed reluctance to support it wholeheartedly.
