SPIEGEL Interview with Economist Nouriel Roubini: 'We Will Have Even More Crises in the Future'
First came the real estate crisis. Then the financial system melted down. And now, skyrocketing public debt is threatening entire countries. Star economist Nouriel Roubini tells SPIEGEL that more crises will come and go before world leaders agree on true reform. He says breaking up huge banks would be a good place to start.
SPIEGEL: Professor Roubini, you have a cameo role in the upcoming sequel of the movie "Wall Street." Who are you playing?
SPIEGEL: We understand you also acted as a consultant for Oliver Stone, the director of the movie?
Roubini: I was not a formal consultant, I just helped him with some advice. We met on a couple of occasions and he asked me about the financial crisis. He also came to a social event with clients of my firm; he wanted to meet hedge fund managers. I came rather accidentally to my role in the movie as "Dr. Doom."
SPIEGEL: You got your nickname, of course, because you were predicting the financial crisis at a time when many other economists were still full of optimism. Are you still pessimistic about the future of the global economy?
Roubini: First of all, I'm not a perma-bear. I am not always negative about the future. Rather, I want to assess the situation correctly. But if I look at the economic picture of the world now, I still see plenty of dark clouds.
SPIEGEL: According to the International Monetary Fund, economic activity is picking up again with forecasts of 4 percent growth this year. Isn't this cause for Dr. Doom to surrender to Dr. Boom?
Roubini: I'm a realist. I can only see a few bright spots in some countries like China, India or Brazil. But the rest? The US economic recovery has been anemic, Japan looks comatose, and Europe is facing a double dip. The Continent is vulnerable to falling back into recession. Even before the Greek shock, the outlook was rather moderate, but now euro zone growth is closer to zero.
SPIEGEL: What do you think about the dangers presented by Greece?*
Roubini: Today the markets are very worried about Greece, but that's only the tip of the iceberg. Increasingly, bond market vigilantes have woken up in places like the UK and Ireland. Even the US and Japan will have problems because of their huge budget deficits. Maybe not this year, but they will eventually. In the US, states like California, Nevada, Arizona, New York and Florida have immense fiscal problems. The growing budget deficits and the huge government debts are really what worry me most.
SPIEGEL: Is it really the right thing to do for the IMF and the EU to help out Greece with 110 billion?
Roubini: That is only kicking the can down the road for a year. I am afraid that Greece, more likely than not ,isn't just illiquid, but insolvent. And providing an insolvent country with money and forcing it to make painful cuts isn't going to do it. Even if taxes are raised and spending is cut, Greece won't necessarily become more competitive. On the contrary, output might fall, unemployment might rise and market share will be lost. We need a plan B.
SPIEGEL: What should that plan B look like?
Roubini: It is necessary to start with a pre-emptive debt restructuring. We have to find an orderly solution for debtors and creditors. And we also need to work out fiscal adjustments for other euro zone countries like Portugal or Spain.
SPIEGEL: Do you think the German government would agree to that? German banks would have to come up with billions once again.
Roubini: Indeed, more than 300 billion of Greece's public debt is held by non-residents, mostly financial institutions from Germany, France and Switzerland. They will have to forego a part of that. Too much time has already been lost by ignoring the Greek crisis. Without such a plan B, if Greece collapses in a disorderly way then the domino effect hitting Spain, Portugal and other parts of the euro zone could be very rapid and dangerous. Eventually, this could lead to a destruction of the monetary union.
SPIEGEL: Did German Chancellor Angela Merkel make things worse by not reacting fast enough to the crisis?
Roubini: Yes, the EU wasted several precious months in designing a support package for Greece in part because of German political resistance to such a package. Domestic German politics and growing skepticism about European monetary union led to a delayed policy response that damaged the efforts to contain the Greek crisis and prevent it from infecting other parts of the euro zone.
SPIEGEL: Was monetary union a mistake?
Roubini: I wouldn't go that far. But it might have been a mistake to allow so many countries in so early. A smaller core of countries that are economically more homogenous, fiscally more sound and committed to structural reforms would have made for a more successful monetary union. The trouble is, once they are in there is no exit without causing a lot of damage.
SPIEGEL: Today, it's a debt crisis. Before that it was a banking crisis. And before that a real estate crisis. Must we get used to constantly being hit by new crises?
SPIEGEL: You make it sound as though crises were inevitable.
Roubini: They are not inevitable. But if you look at history, you will see patterns repeated -- such as excessively loose monetary policy, leveraged vulnerabilities and weak regulation. And we will see them again. Probably we will have even more crises in the future.
- Part 1: 'We Will Have Even More Crises in the Future'
- Part 2: 'We Have to Starve the Beast'
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