Roubini’s Das: Expect More Pain for Spain
Associate Editor, CNBC
Spain will be downgraded further by credit agencies, the managing director of Roubini Global Economics said on Friday, because its balance sheet is so large that it can’t resolve its problems by spending cuts alone.
“S&P and other agencies will have to continue to downgrade Spain. The balance sheet is so large it is a big problem and structural reforms and fiscal adjustment are essential,” Arnab Das told CNBC’s “Worldwide Exchange.”
Standard & Poor’s downgraded Spain to BBB+ on Thursday, citing a “deterioration” of the likelihood that the country will meet its budget deficit targets.
Das works alongside Nouriel Roubini, the renowned economist famed for predicting the financial crisis in 2008 and who is dubbed “Dr. Doom” for his bearish predictions.
The pair wrote an op-ed this month in the Financial Times calling for a divorce for the euro zone, and arguing that the single currency zone has deeply rooted problems that have yet to be resolved.
Das said heightened political rhetoric from European leaders, along the lines that austerity alone is strangling Europe’s economic performance, was just “cheap talk.”
“This idea of a ‘growth compact’ has been making ground, but talk is cheap. Just saying that you will have one is just not good enough. No one has a good answer. The only way to get growth is to have the public sector leverage up as banks deleverage,” he said.
He added that core countries needed to increase their spending so that the peripheral countries can export to them, but he is pessimistic about the long term health of Spain.
“A certain amount (of Spain’s situation) has been priced into the market after the euphoria of the last round of LTRO, and we’ve had tough trading conditions for the last couple of weeks, but there will continue to be pressure on Spain and Italy,” Das said.
He added that at some point the European Central Bank will need to provide more of its Long Term Refinancing Operation, the infusion of credit the ECB made into the European banking system in December.