Feb. 20 (Bloomberg) -- Europe’s banking system faces growing risks that may require a region-wide effort to stabilize financial markets, said New York University economist Nouriel Roubini.

“The banking problem in Europe is becoming more severe,” Roubini said in a Bloomberg Television interview. “You have a series of countries that are really in trouble,” Roubini said, citing Latvia, Estonia, Lithuania, Hungary, Belarus and Ukraine.

European lenders are taking steps that could increase state control of banks as the recession deepens. German Chancellor Angela Merkel’s cabinet approved draft legislation this week allowing for the takeover of Hypo Real Estate Holding AG, paving the way for the first German bank nationalization since the 1930s.

Roubini said European nations collectively may go further and assist member states that are unable to rescue their own banks. “Even the European Union now is thinking of helping those sovereigns and their banking systems,” he said.

Roubini, who predicted the global credit crisis, also discussed the need for stimulus plans. The best approach in the euro zone is “fiscal stimulus in the short term but fiscal consolidation over the medium term,” he said.

He noted that while the $787 billion U.S. fiscal stimulus package, signed into law this week by President Barack Obama, is necessary, it may not be sufficient and will put the country deeper into debt.

“We’re going to add $4 trillion to $5 trillion to the public debt over the next few years,” he said. “Down the line, maybe two or four years, there may be a downgrade of even the United States.”

Still, he said, the U.S. is taking appropriate steps compared with other economies. He said the European Central Bank and Japan are “behind the curve.”

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net Erik Schatzker in New York at eschatzker@bloomberg.net

Last Updated: February 20, 2009 10:24 EST