Governments face 'extreme' dilemma on deficits: Roubini

4th June 2010, Comments 0 comments

Governments with growing budget deficits face an "extreme policy dilemma" as they balance the need to stimulate recovery with keeping debt under control, economist Nouriel Roubini said Friday.

"The increase of fiscal debt right now is leading to an extreme policy dilemma --on one side, we need the monetary fiscal stimulus because the recovery of private demand is still anaemic," Roubini told a conference in Switzerland.

On the other hand, persisting with the stimulus for too long would fuel deficits and risk either default or high inflation, explained Roubini, who is regarded as one of the few experts who predicted the global financial crisis.

"The question is what you do about it -- if you take away the monetary and fiscal stimulus too soon, the risk is you go back to recession and deflation and maybe depression," added the New York University professor.

Roubini said major economies like the United States, Japan and Britain, with direct control over their national currencies, could print money to avoid a sovereign debt problem but that would carry a risk of high inflation.

Governments in the eurozone faced real challenges, he added.

"Greece is only the tip of the iceberg," he said at the "Zermatt summit," which brought together academics, thinkers and business representatives around the theme of humanising globalisation.

Roubini said last week that eastern and central European countries running large public deficits had no alternative to austerity measures and reform.

© 2010 AFP

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