Europe’s Economic Honeymoon Is Over: Nouriel Roubini

The honeymoon for the ECB's new president Mario Draghi has turned out to be brief. The trouble is that the eurozone has an austerity strategy, but no growth strategy – and, without that, all it really has is a recession strategy that makes austerity self-defeating, because, if output continues to contract, deficit and debt ratios will continue to rise to unsustainable levels.

NEW YORK – Since last November, the European Central Bank, under its new president, Mario Draghi, has reduced its policy rates and undertaken two injections of more than €1 trillion of liquidity into the eurozone banking system. This led to a temporary reduction in the financial strains confronting the debt endangered countries on the eurozone’s periphery (Greece, Spain, Portugal, Italy , and Ireland), sharply lowered the risk of a liquidity run in the eurozone banking system, and cut financing costs for Italy and Spain from their unsustainable levels of last fall.

At the same time, a technical default by Greece was avoided, and the country implemented a successful – if coercive – restructuring of its public debt. A new fiscal compact – and new (Unelected) governments in Greece, Italy, and Spain. Read More