The discussion at the Milken Institute Global Conference in Los Angeles on the future of the European Union (EU) naturally centered on Greece. Predictably, Professor Nouriel Roubini attracted most attention on the panel.
As is his wont, Roubini was extremely pessimistic about the future of the Greek economy and the economies of other countries such as Portugal, Spain, and Italy. "These countries have two main problems, growth and competition. High production costs have meant that China has won in the battle for production of goods," Roubini said yesterday evening.
Roubini believes that the situation in Greece puts not just its neighbors, but the whole EU at risk, because of the economic ties between the countries and the fact that many EU countries hold Greek bonds. Roubini estimates that, for these reasons, Germany will ultimately support aid for Greece. "The collapse of Greece could topple the whole European Union, which will cause Germany greater damage, and it's not certain that Germany wants that," Roubini explained, and added that, "The collapse of Greece would have a much bigger effect than the crash of Lehman Brothers."
Roubini thinks that the EU's aid program will not succeed in rescuing Greece from its crisis, because the program fails to deal with the country's real problem, and it could even be a waste of money. "People pretend that Greece's problem is liquidity, but the problem is low productivity and absence of competition. Greece's debt problem can be solved, but productivity and competition will be very hard to restore. Spain is even more problematic than Greece. It has very high unemployment, no competition, and extremely low productivity. The situation in Spain is dire, and Spain is more important to the EU than Greece."
Roubini told "Globes" that in the end Greece would have to leave the EU, because the political situation in the country would not allow fiscal adjustment in the short time available, and because it was not clear whether raising taxes and cutting spending would help or hinder growth in the short term.
Published by Globes [online], Israel business news - www.globes-online.com - on April 28, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010