Europe Economy

Roubini: Euro Zone 'In Denial,' US Postpones Reforms

Famous economist Nouriel Roubini, credited for predicting the financial crisis, made a plea to policymakers to take the tough action needed to address current economic problems, in an article published on the Financial Times website.

Nouriel Roubini
Getty Images

"The euro zone has been in denial of the fact that some of its member states are insolvent, as well as unable to survive and grow in a monetary union," he wrote.

In the U.S., fiscal consolidation was postponed and other structural reforms — such as investment in infrastructure, skills, and education, as well as changes to energy policy, all measures needed to restore growth — were also postponed, Roubini wrote.

As for China, it has "persisted in its weak currency, to support its export and investment-led growth model where savings are too high and consumption too low," the economist, dubbed by some in the media as Dr. Doom for his gloomy scenarios, added.

On Tuesday, European Central Bank Vice-President Vitor Constancio told CNBC in an interviewthat a break-up of the euro was "unthinkable" and "absurd."

But Roubini warned that political considerations, which prevent leaders from taking tough decisions, yielding results only in the medium term, could lead to currency and trade wars.

"It will become clear in 2012 that this game of 'kicking the can down the road' is a zero-sum game," he wrote.

Any country would rather have a weak currency to boost its exports to restore growth, and currency tensions will make the situation worse next year, when a combination of market pressures and conflicting political constrains "will make it more difficult to kick the can down the road," Roubini predicted.

"By 2013 at the latest, but possibly already in 2012, a perfect storm of a double-dip recession in the U.S., a disorderly scenario in the euro zone and a hard landing in China could materialize," he wrote.