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Roubini Says Fiscal Compact Will Deepen Euro Area Recession

Nouriel Roubini, co-founder of Roubini Global Economics LLC, said the fiscal compact will deepen the euro area recession next year, even as countries such Germany and Austria will be obliged to cut deficits.

“Next year we are also going to have austerity in the core of the euro area because the newly agreed fiscal compact says that even Germany, Netherlands, Belgium, Finland and Austria have to cut their deficits,” Roubini told reporters at a conference today in Berlin organized by IG Metall, Germany’s biggest trade union. “With austerity in the U.S and in Japan, the risk is that this is going to push the global economy in another downturn.”

The recession in the 17-nation euro bloc isn’t going to bottom out this year and will continue “for at least another year” Roubini said in a speech at the conference. Further impairing the recovery in the euro area’s peripheral countries is the European Central Bank’s inability to weaken the currency, making Germany at the same time “ueber-competitive,” Roubini said.

Referring to France, Roubini said economic data suggests the country will enter into a recession next year, while Germany’s economy will slow down with falling demand from euro-area partners and export growth slowing to Asia.

Even though the risk of a euro area break-up has decreased since the ECB announcement of an unlimited bond-buying program, Roubini said European leaders need to make job creation and growth a priority.

“People know that they have to make sacrifices, but after four to five years of recession you need to see light at the end of the tunnel,” Roubini said in the speech. “If there is no economic growth, eventually the social backlash against austerity is going to become too big.”

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