Roubini Says Greece May Lead Exodus From Euro, China's Growth May Falter

[marmar]

Roubini Says Greece May Lead Euro Exodus, China Faces Slowdown
By Shamim Adam and Susan Li


May 12 (Bloomberg) -- New York University professor Nouriel Roubini said Greece and other “laggards” in the euro area may be forced to abandon the common currency in the next few years to spur their economies.

A “real depreciation” in the euro is needed to restore competitiveness in nations including Spain, Portugal and Italy, he said in an interview on Bloomberg Television today. The euro will remain the currency for a smaller number of countries that have “stronger fiscal and economic fundamentals,” Roubini said.

The European Union and International Monetary Fund last week approved a 110 billion-euro ($139 billion) lifeline for Greece to arrest the country’s fiscal crisis and stop the turmoil from spreading. Europe’s debt woes may push it into a “double-dip” recession, growth in advanced nations will be “anemic” and China’s overheating economy risks a slowdown, Roubini said, adding that Greece may still eventually need to restructure its debt.

“The challenge of reducing a budget deficit from 13 percent to 3 percent in Greece looks to me like mission impossible,” Roubini said. “I would not even rule out in the next few years one or more of these laggards of the euro zone might be forced to exit the monetary union.”

Greece agreed to the package on May 2, pledging 30 billion euros in wage and pension cuts and tax increases in the next three years to tame the euro-region’s second-biggest deficit.

Prime Minister George Papandreou had revised up the 2009 budget deficit to more than 12 percent of gross domestic product, four times the EU limit, and twice the previous government’s estimate. EU officials revised the deficit further on April 22, to 13.6 percent of GDP. ............(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aWx2RrHBu90A&pos=6

[dipsydoodle]

1. Funny you should mention China

I'd wondered if they'd buy Greece. :sarcasm:

[KharmaTrain]

2. And The Money Will Flow Back Into The Dollar

There's already a rise in the sale of T-Bills and other dollar-based securities...a reverse flow from what we saw throughout most of the past decade when the Euro was gaining on the dollar (especially after the rise of oil prices and the collapse of the housing market). That money is going somewhere and it looks like its going for the relative safe harbor of the dollar.

The dollar is sure to gain strength and this could start to wipe out some of the debt to China that we've incurred as a stronger dollar is what they were betting on. Europe's loss is the US's gain.

[marmar]

5. I don't know that the US considers a strong dollar a good thing right now.

nt

[KharmaTrain]

6. Depends On Who You're Betting On...

No it doesn't help create jobs or loosen credit as it makes US goods more expensive abroad, but on Wall Street that's of no consequence. There's many ready to bet on rising interest rates and inflation...riding the dollar at it gains value and they make money.

[Turbineguy]

3. Well, now that they get the money,

they can leave town and start over.

There are obviously a few things the Europeans need to straighten out with regard to this currency. Maybe they spent too much time debating the shape of bananas and when it came to the really important stuff they were tired. Personally, I've always thought the Americans sabotaged the whole operation in order to nobble the Euro from become the reserve currency of choice. Of course, that would be an expected Treasury policy. American business however did an end run, exporting jobs to China.

And to nail the coffin shut we put Bush and his wrecking crew in there.

[FLPanhandle]

4. How much flexlibility do they have to leave the Euro?

I could see the EU being against this and demanding their bailout funds back if Greece tried thus forcing them into default. Anyone know if their is a provision in the EU constitution for a country to leave?

[madrchsod]

7. more money for the government officials to loot....

government ministers bringing in hundreds of thousands if not millions in diplomatic briefcases to be invested in the usa.