Nouriel Roubini, Professor of Economics and International Business at NYU Stern, writes on the global economy. Roubini addresses the Eurozone, China, Japan, the Middle East, and the US, to paint a picture of a global economy where the US is “in the best relative shape” while Europe is “mired in recessions.” The following is an excerpt from his Project Syndicate Op-Ed:
The Global Economy on the Fly
ISTANBUL – In the last four weeks, I have traveled to Sofia, Kuala Lumpur, Dubai, London, Milan, Frankfurt, Berlin, Paris, Beijing, Tokyo, Istanbul, and throughout the United States. As a result, the myriad challenges facing the global economy were never far away.
In Europe, the tail risk of a eurozone break-up and a loss of market access by Spain and Italy were reduced by last summer’s decision by the European Central Bank to backstop sovereign debt. But the monetary union’s fundamental problems – low potential growth, ongoing recession, loss of competitiveness, and large stocks of private and public debt – have not been resolved.
Moreover, the grand bargain between the eurozone core, the ECB, and the periphery – painful austerity and reforms in exchange for large-scale financial support – is now breaking down, as austerity fatigue in the eurozone periphery runs up against bailout fatigue in core countries like Germany and the Netherlands.
Austerity fatigue in the periphery is clearly evident from the success of anti-establishment forces in Italy’s recent election; large street demonstrations in Spain, Portugal, and elsewhere; and now the botched bailout of Cypriot banks, which has fueled massive public anger. Throughout the periphery, populist parties of the left and right are gaining ground.
Meanwhile, Germany’s insistence on imposing losses on bank creditors in Cyprus is the latest symptom of bailout fatigue in the core. Other core eurozone members, eager to limit the risks to their taxpayers, have similarly signaled that creditor “bail-ins” are the way of the future.
Outside the eurozone, even the United Kingdom is struggling to restore growth, owing to the damage caused by front-loaded fiscal-consolidation efforts, while anti-austerity sentiment is also mounting in Bulgaria, Romania, and Hungary.
Read the entire article here.