Private equity seeks opportunities in Greece
Nouriel Roubini, the famous American economist who predicted the 2008 global financial crisis – and for that reason has been nicknamed “Dr Doom” – participated in a webinar-discussion hosted by the Harvard Business School Club of Greece in September of the last year.
Recently, the world has paid close attention to his views on the economic issues related to Covid-19, stagflation, and bitcoin, among others.
Today, the professor of economics at the Stern School of Business at New York University and director of macroeconomic, political and financial market research firm Continuum Economics speaks to Kathimerini about the challenges and opportunities in Greece, in Europe and around the world.
Professor Roubini, what do you think of Greece? Do you see a return to growth or rather a stagnation for a few years?
Last year, the contraction of the Greek economy was slightly smaller than that of Italy. But now we are talking about the future. There is a positive change, not only for Greece but for the euro area as a whole. It starts in the second quarter, there is a strong pick-up in growth. Specifically for Greece, the number of coronavirus cases is dropping sharply, the economy is reopening soon, gradually but significantly by May. The contagion is expected to be even slower in summer due to the rise in temperatures and also because the vaccination will be accelerated. In addition, there are very accommodating economic policies. The European Central Bank continues its easing, it buys bonds and Greek bonds are eligible for purchase. In addition, the grants and low-rate loans under the stimulus fund provide a significant stimulus that will increase productivity if used for investments in digital transformation and the green economy. And even the International Monetary Fund recently suggested that the [Greek] the debt is sustainable given reasonable growth and interest rate scenarios.
What is your opinion on the current government?
Prime Minister Kyriakos Mitsotakis understands the kind of reforms needed. It shows leadership, it strengthens the business climate in the country. Investment capital will therefore look for opportunities to come to Greece.
Ten years ago, you suggested that Greece default and abandon the euro to revive growth. Some people in Greece still wonder if the country would have done better over the past decade if we had dared to leave. Did we miss an opportunity to do even better?
What I said in 2010 was that the country needed debt restructuring because the debt burden was excessive. And the debt restructuring eventually took place using Collective Action Clauses (CACs). There has indeed been a restructuring of debts to the private sector. At the same time, the troika provided a bailout, offering time for adjustment, making debt more sustainable, as well as a number of economic reforms. There was of course a debate as to whether the austerity was excessive, but you couldn’t have excessive deficits anyway and some form of austerity was needed. I have never had a proactive argument to leave the euro zone. There were many arguments against leaving and the strongest was that if the country were to carry out a very important bailout, then it could weather the crisis while remaining a member of the eurozone. It turned out that Greece got a huge bailout, 200 billion euros. It was the carrot to stay, to stay competitive and to adjust. He was the right thing to do.
What about the Turkish economy? Are the big problems he faces perilous? Is it too big to fail?
The root of Turkey’s problems is macroeconomic mismanagement. Turkey used to have sensible policies when Greece was in a macroeconomic crisis which led to solvency problems. Now Greece has sensible policies. EU fiscal stimulus and ECB monetary policies are doing the right job while reforms are designed to attract investment. Today Turkey faces an excessive deficit due to the extension of credit to state entities, financial repression and capital controls and loose monetary policy. The governor of the central bank has just been sacked. We see inflation rising alongside a free fall in the currency. Instead of reforms, we see very unorthodox policies. Turkey had great credibility with investors, but this is no longer the case today.
Do you see the euro zone moving towards even greater integration?
Technically speaking, there is no joint liability in the eurozone and new debt issued to tackle the coronavirus crisis will be faced over time. But when the debt is issued, then it is politically very difficult to raise taxes to bring the debt down to zero. Consequently, this debt will be a feature of the European debt market and a joint and several liability. In addition, the expansion of the common budget from 1% to 2% of GDP is also here to stay. These are developments towards a permanent fiscal union. Europe is going step by step to create a fiscal union.
You said the US recovery will be K-shaped rather than V-shaped. Would that create even more political and social instability?
The AK’s recovery reflects rising incomes and rising inequalities. Of course, this can lead to greater social and political instability. But keep in mind that US President Joe Biden realizes that minorities and many workers suffer more. That’s why much of the $ 1.9 billion package passed by Congress goes to the unemployed, to those who stay.
They say the stimulus is too big and will lead to economic overheating and inflation.
Until recently, the debate was that the recovery would be weak. It is now said that the stimulus could be excessive. Indeed, $ 3 trillion was spent in March of last year, $ 900 billion in the summer of last year, now $ 1.9 trillion and an additional $ 3 billion is in the pipeline for infrastructure over the next decade. Some economists, like Lawrence Summers, discuss the overheating economy and inflation. The Treasury yield rose from 0.9% to 1.7% and up. But on the other hand, too many homes haven’t paid their bills. Therefore, inflationary pressure will be lower than expected. We will see. The debate is on …
You cautioned against negative supply shocks in the global economy. What does it mean?
The global economy will face negative supply shocks. The aging of the population in all countries, even in China, is a negative supply shock. Aging populations and restrictions on migration restrict supply, raise wages and cause inflation. The risk of fragmentation of the global economy due to trade wars and decoupling between the United States and China is also a negative supply shock. If not properly addressed, negative supply shocks lead to budget deficits. Second, governments tend to monetize deficits (by issuing money), which brings us back to inflation.
You have argued that bitcoin is a speculative bubble devoid of any intrinsic value. But in a world of climatic uncertainty and growing inflation, could it become a source of value? Some people say it’s gold in digital form. Why not?
To say that bitcoin is digital gold is a misnomer. Gold is used in industry, it gives you utility in the form of jewelry. Bitcoin is not portable. It would be ugly and ugly. Gold has been used as a store of value for thousands of years and also against political and geopolitical risks. It has a monetary function, it is a credible means of payment. Bitcoin is none of the above. Only four transactions per second can be made in bitcoin, compared to 25,000 processed per second by Visa. It is neither an asset nor a currency. It is based on speculation. Also, the so-called “mining” of bitcoin requires the energy consumption of a country like Argentina. It is an environmental disaster.
The HBS Club of Greece
The Harvard Business School Club of Greece, whose members Nouriel Roubini had a conversation last year, is one of the main forums in South East Europe. It was established in 2002 by international economist Stelios Zavvos, who is also its president, and it organizes speeches and meetings where ideas and views on important issues are explored and discussed. Its members include Prime Minister Kyriakos Mitsotakis, former Prime Minister Antonis Samaras and former Minister of Finance Stefanos Manos, businessmen and entrepreneurs Dimitris Papalexopoulos, Efthymios Vidalis, Constantine Petropoulos and Paris Kyriacopoulos, as well as other eminent personalities. Among its distinguished speakers are Nobel Laureates Edmund Phelps and Joseph Stiglitz, Professors Jeffrey Sachs, Dani Rodrik, Tommaso Padoa Schioppa and economists Kemal Dervis, Daniel Gros, Lorenzo Bini Smaghi and Jean Pisani-Ferry.