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Roubini warns of eurozone break-up

Nouriel Roubini, the chairman of Roubini Global Economics known also by his popular nickname “Dr Doom”, has warned the eurozone will break up if it fails to find a more radical solution to its current problems.

Writing on the Financial Times website, Roubini argues that a lack of discipline in countries such as Greece and Portugal has caused them to lose their competitiveness. Spain and Ireland remain plagued by the end of their financial bubbles, he says.

Core taxpayers are unlikely to accept “the taxes of German (and other core) taxpayers are not backstopping only their country’s debt but also the debt of the members of the periphery”, warns Roubini.

The solution is to leave the euro and return to national currencies “and achieve a massive nominal and real depreciation”.

Roubini recognises the inconceivable nature of such a suggestion but recognises that might not be the case five years down the line.

Roubini also reiterates his prediction that some eurozone government debt will have to be restructured. Yesterday saw Standard & Poor’s downgrade Greece to CCC – the worst sovereign rating in the world.
In a statement, S&P said: “In our view, Greece is increasingly likely to restructure its debt in a manner that, under the conditions of any package of additional funding provided by Greece’s official creditors, would result in one or more defaults under our criteria.”

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  1. Julian Stevens 15th June 2011 at 9:00 am

    It would be interesting to know just what benefits have been achieved by the creation of the eurozone. It seems primarily to have been about the creation of financial disciplines across a disparate assortment of national economies, to which various countries have agreed to aspire but then, when they’ve failed, they somehow get let off the hook and their more successful neighbours end up bailing them out. So, for example, Germany has ended up pouring billions of euros of its own prosperity into Greece but plainly it hasn’t worked. If, as seems likely, Greece defaults, that money will just have to be written off. What will Germany’s response be when Spain or Portugal asks for a few hundred billion euros?

    The reason Turkey’s so keen to gain admission to the eurozone isn’t because of what it can contribute but what it can get out of it. Ireland joined the eurozone, boomed for a while on all the grants (hand-outs) and borrowed money but now, due to incompetent fiscal governance, its economy has gone to pieces and it’ll probably never pay any of that money back. Why the UK is “lending” Ireland billions of pounds, I really don’t know. It’s all very well to talk about making Ireland a stronger trading partner but, if that strength is based principally on our own money, it doesn’t seem exactly to constitute a very robust proposition

    When all is said and done, countries have to accept the consequences of failing to manage their own economies competently and get themselves out of the mire ~ as indeed is UK plc ~ rather than going cap in hand for a bail-out from all the other countries in the eurozone. So what if UK plc is on the economic fringes of the eurozone? We seem to have coped okay for the last several hundred years. In all probability, the creation of the eurozone will go down in history as a monumentally expensive experiment that simply didn’t and was never going to work.

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