Euro Area Bought Some Time in Staving Off Breakup: Rogoff

Greek Prime Minister Antonis Samaras
Antonis Samaras, prime minister of Greece. Photographer: Chris Ratcliffe/Bloomberg

European leaders probably bought “a little bit of time” in staving off a euro-area breakup after last week’s summit even as the region remains a long way from stabilization, Harvard University Professor Kenneth Rogoff said.

Greek Prime Minister Antonis Samaras asked European leaders last week to loosen austerity measures tied to 240 billion euros ($303 billion) in financial aid from international donors for his country. Greece will struggle to meet its targets and still probably default, Rogoff said in an interview with Bloomberg Television today.

European Union leaders at a June 28-29 summit agreed to loosen bailout rules, lay the foundations for a banking union and break the link between sovereign and banking debt through the direct recapitalization of lenders. Euro-area officials, fighting to prevent the sovereign-debt crisis from spreading, also took measures to bolster growth amid a global slowdown.

“They are going to continue to do more and more radical measures to stand still,” Rogoff said. “We’re very, very far from a long-term vision. It’s a long difficult path, still. We’re a long ways from stabilization.”

Leaders approved a 120 billion-euro plan to promote growth in the 27-nation bloc that includes a capital boost for the European Investment Bank.

Federal Reserve policy makers have said they are ready to take more steps should the U.S. expansion slacken. Rogoff said that while the U.S. economy is “slowing a bit,” it would be premature to say it’s headed back into a recession.

“Clearly this is not an economy in galloping growth that’s creating 300,000 or 400,000 net new jobs a month that we really need to start digging our way out of this,” he said. “The U.S., though not falling into immediate recession, is not an engine of growth that’s going to pull us out, with China slowing and Europe in recession.”

China is going through a “delicate political transition” that makes it harder to deal with its economic problems, he said.

“I still expect sometime over the next few years to see a significant slowdown in China’s rate of growth that may prove very difficult to handle, especially for a world that’s just not expecting it,” he said.

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