As the eurozone troubles continue to mount, there is a growing consensus that “muddling” through won’t be enough. Critics say that more immediate and drastic action must be taken, namely by Germany and France, before the negative watch warning for the ratings of France and the regional bailout fund, the European Financial Stability Fund, potentially becomes something that matters.
One man, however, doesn’t think the disparate governments that can make a difference will.
And it’s a guy who knows a little about forecasted meltdowns.
According to the New York Times, in 2006, Nouriel Roubini, an NYU economist who has been nicknamed Dr. Doom, “laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.”
As the tale goes, the IMF audience he spoke to were skeptical to say the least. Some likely thought he was a funny little man.
Others thought he was nuts.
Unfortunately, he was correct.
Now, he is predicting a major European recession, one large enough to spread worldwide.
Roubini predicts Europe’s leaders “will reach something of a compromise, but it won’t be sufficient” to solve the problem of too much government debt.
They will agree that “fiscal austerity and reforms will be necessary,” but those changes will only depress growth, leading to lower tax revenues and a deepening debt crisis. Eventually, investors in European bonds “will see they are insolvent,” he said.
“With Italy too big to fail, too big to save, and now at the point of no return, the endgame for the eurozone has begun,” Roubini said in a recent written assessment.
Hopefully, Doom won’t strike twice.