US ECONOMIST Nouriel Roubini has called for Ireland’s bank debt to be cut, warning of long-term social consequences if the country is subjected to a prolonged austerity “experiment”.
Amid widespread interest in Ireland’s economic situation at this year’s forum, Prof Roubini proved an outspoken critic of the country’s current austerity strategy.
Once dubbed “Dr Doom” for predicting the US property crash, the US-based economist said Ireland should not be used as a testing ground for the economic theories of others.
"Ireland shouldn't be an experiment and should get debt relief," he told The Irish Times. "You socialised all the private losses of private banks and now your debt is more than 100 per cent of GDP. Ireland needs debt relief."
He warned that problems in the euro zone were affecting the rest of the world’s economy and would take years to solve.
“Austerity is going to lead to even more recession because raising taxes and capping government spending at a time of deep recession is always a bad idea.
“We need more growth and less austerity in Europe.”
For Prof Roubini, European countries appear trapped in a hamster wheel of debt and austerity.
“Without growth, eventually the social and political backlash against austerity will become overwhelming. You try to stabilise debt to GDP, but if GDP keeps collapsing, the debt ratio goes through the roof. So you need less austerity and more growth.”
Mr Roubini said that given the widespread debt and current account problems in the euro zone, it was illusory to expect a solution to come by printing money in Frankfurt.
His pessimistic message was taken up by billionaire financier George Soros at a lunch on the sidelines of the forum. He warned that leaders had done everything wrong since starting in the financial crisis in 2007 and continuing with their austerity plans today.
“The austerity that Germany wants to impose will push Europe into a deflationary debt spiral,” said Mr Soros, warning that the political disintegration of the European Union could result.
“Structural reforms alone will not do it. There will have to be fiscal stimulus and that fiscal stimulus will have to come from the EU, jointly and severally guaranteed by the member states. Euro bonds are needed in one form or another.”
Describing Greece as “patently insolvent”, Mr Soros said ECB liquidity measures had “helped banks but didn’t cure the financing disadvantages highly indebted countries suffer: half a solution isn’t enough”.
With a Greek default likely, he said the western world was poised at a moment of collapse similar to that of the Soviet Union – “without fully realising what’s happening”.
A stock market official from the US spoke for many attendees yesterday: “You come here as an optimist but this place can wring the optimism out of you in three to four days.”
