Call me “Dr Reality”
“There are many negatives in the Eurozone, but there are also many rays of hope.” These words came out of the mouth of Nouriel Roubini, one of the world’s most renowned economists, who was invited to the conference by BIL, Banque Internationale à Luxembourg. Known as “Dr Doom” by many, he questions his notorious nickname.
Nouriel Roubini anticipated the collapse of the US housing market and the worldwide recession, which started in 2008. His critical views have earned him the nickname “Dr Doom” in the media. During his press conference with Luxembourg journalists, Mr Roubini got the facts straight.
“I wouldn’t define myself as a fatalist; historic and economic developments are not predetermined but do depend on policy actions being undertaken and their interaction with the private sector. I don’t think of myself as a sceptic or ‘Dr Doom’ but rather, as ‘Dr Reality’ – describing what is happening. Furthermore, for every crisis there is an opportunity to do something about it”.
There are indeed many negatives in the Eurozone and he named a few of them: the recession, fiscal trouble, severe banking problems, a loss of competitiveness and excessive public and private debt. But the acclaimed economist also insisted on the fact that there are some rays of hope.
“First of all, the European Central Bank has taken a more flexible attitude towards the problems of the Eurozone under the new leadership of Mario Draghi. Secondly, there are discussions about coupling the monetary union with a banking, fiscal, economic and political union; whether this will happen or not remains to be seen, but it would certainly be a positive step forward.
Thirdly, the European Stability Mechanism (ESM) has been approved; it is a great tool that will help banks and countries in trouble”. Furthermore, he noted there has been a change in the German attitude. They have realised that the exit of Greece and the collapse of the Eurozone would not only damage the periphery of Europe but also its core, with Germany taking a blow as both trade partner and creditor.
He stresses that when you speak about the German attitude you shouldn’t forget that there is a spectrum of views. “Within the government parties of CDU/CSU and Liberals there is a spectrum of views on what needs to be done. There is part of the press that is anti-Europe and anti-Greece; academics are split too. Even within the Bundesbank, (The German Central Bank) some members are sceptical about the future of the Eurozone and some are not”. All in all, he is convinced that Chancellor Merkel’s government wants reforms in the periphery but also wishes the Eurozone will succeed and survive.
Surviving with how many member states, that is one of the crucial questions. Recently, Mr Roubini has predicted a 60% chance of Greece leaving the Eurozone by the end of 2013 and the same probability of Portugal exiting one year later. At the press conference in Luxembourg, he justified this outlook like this:
“Economists live in a world where there is a lot of uncertainty so you cannot speak of only one scenario. There is always a baseline and an upside and a downside scenario, and then you assign probabilities. But they are not a science, because economics is a combination of science, good sense, intuition and art”. He states that the Eurozone could well survive with the current 17 members and other countries could join; it could also survive even if two of the smaller members like Greece, Cyprus or Portugal were to exit.
He predicts that if Spain and Italy were to leave, there would be a break-up of the Eurozone with maybe only the core surviving, meaning Germany, Luxembourg, The Netherlands, Belgium, Finland and Austria.
In order to get out of the gloomy economic situation the Eurozone is right now, Nouriel Roubini suggests that European leaders push for fiscal austerity and structural reforms, but also urges them to restore economic growth. If this takes too long, he emphasises, the political and social backlash could be overwhelming. CW