Greece Still Needs to Slash Budget Deficit: Roubini
Greece's debt deal could help the struggling euro zone country avoid a "refinancing crisis," but Greece still needs to cut its budget deficit to resolve its long-term problems, economist Nouriel Roubini said Friday.
"Greece has to do adjustment, has to reduce its budget deficit, because if it doesn't do that, even with help it's not going to be able to resolve this problem," Roubini said in a brief interview on CNBC Class, the Italian sister station of CNBC.
Even though the deficit-cutting plan is vital to balance Greece's books, the guarantee provided by the EU and IMF is also needed to stabilize the situation, according to Roubini.
The deal to backstop Greece's debt was hammered out between European Union leaders and the International Monetary Fund Thursday, with European Central Bank President Jean-Claude Trichet giving his backing by saying the plan was "workable."
Greece is unlikely to tap the EU and IMF for funds, according to Bank of Greece Governor George Provopoulos. But the option provides the country with what Greek Finance Minister George Papaconstantinou described to CNBC as a "loaded gun."
"Greece also needs financial support because until it regains credibility the market is going to keep on testing Greece and you need to have enough liquidity to avoid a refinancing crisis," Roubini said.
Greek government bond yields were lower in the wake of the agreement, suggesting investors welcomed the arrangement, at least for now.
"The combination of the package from the EU and the IMF matters less than having it in a credible way on the table, rather than having uncertainty about whether the money is going to be there or not," Roubini said.
-- Reuters contributed to this report.