NYU professor Nouriel Roubini made the comment in a Yahoo! Finance Interview. he cited the following factors to support his gloomy outlook:
Watch the video:
- -- Even in Europe, There's No Free Lunch: All of the bailout money is conditional on countries approving what Roubini calls "massive fiscal consolidation," i.e. big austerity packages like Greece's parliament just passed. Such measures mean fewer public sector jobs (and lower salaries for those who remain) and higher taxes in countries where a lot of people work for the government and already pay relatively high tax rates. "Politically can they do that...or will there be riots and strikes that are going to limit" fiscal austerity measures, Roubini wonders.
- -- Tough Love Hurts: Raising taxes and cutting government spending should help alleviate the short-term debt crisis in Europe's so-called PIIGS but will also likely lead to recession, if not outright deflation. "That will make it harder to force austerity" on the public, he says. There's already violence and rioting in the streets of Athens. "The question is: Will we see the same thing in, for example, Lisbon, Madrid [and] throughout the euro zone?"
- -- No Easy Way Out: One reason the European Union is in this mess is because few of its countries are able to compete in a global economy, especially since they lack the ability to deflate their currency, the economist says. Considering it took Germany 15 years to restructure its private sector so unit labor costs came down low enough to compete globally, nations like Greece, Portugal and Spain face a long, hard slog even if they embark upon such painful programs immediately.
