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Global Recession Likely If Euro Crisis Stays, Nobel Winner Mortensen Says

A global recession is likely if the European debt crisis isn’t resolved within a year, the Nobel Prize-winning economist Dale Mortensen said.

“If the Europeans can’t solve the problem within a year, we are likely to have another worldwide recession,” Mortensen said at a press briefing in Taipei today. “So it’s very important for all of us to resolve that problem in the short term.”

Spain’s credit rating was yesterday cut for the third time in 13 months by Moody’s Investors Service as Europe’s sovereign debt crisis threatens to engulf the nation. German Chancellor Angela Merkel said yesterday that an Oct. 23 European Union summit will mark an “important step,” though not the final one in solving the debt crisis.

“In the long term, Europe realizes that they need to change their fiscal policies,” said Mortensen, 72, who shared the 2010 Nobel Prize for Economic Sciences for his research into unemployment and the difficulty of matching job supply to demand. “The individual country in the Euro zone got to give up some of their sovereign authority to maintain a stable euro.”

Mortensen is a professor at Northwestern University in Evanston, Illinois. He shared the Nobel with Christopher Pissarides of the London School of Economics and Peter Diamond of the Massachusetts Institute of Technology.

The euro today advanced for a second day versus the dollar as reports that France and Germany are nearing a deal to boost the size of Europe’s rescue fund to contain the debt crisis spurred demand for the region’s assets.

Euro Strengthens

The shared currency strengthened against all except two of its 16 major peers as the Guardian newspaper reported the two nations support increasing the 440-billion euro ($607 billion) European Financial Stability Facility to 2 trillion euros before this weekend’s summit. The euro gained 0.4 percent to $1.3802 at 9:31 a.m. London time, after rising 0.1 percent yesterday.

Meanwhile, Asian officials from China to Indonesia have boosted fiscal measures or eased borrowing costs as they seek to shield expansion.

The Bank of Thailand today kept its benchmark one-day bond repurchase rate at 3.5 percent, ending its longest series of increases since 2006, as the nation’s worst floods in five decades and a weakening global economy crimped growth.

Asia’s growth has slowed since the second quarter of 2011, the International Monetary Fund said last week, cutting its forecast for this year’s expansion to 6.3 percent from an April estimate of 6.8 percent. Inflationary pressures across the region are still “elevated” and financial conditions remain accommodative in most of Asia, the IMF said.

The MSCI Asia Pacific Index of stocks slumped 16.2 percent last quarter, the biggest drop since 2008.

To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang in Singapore at sphang@bloomberg.net

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