Roubini warns that Spain is seriously mistaken with its anti-inflation measures
Economist Nouriel Roubini, famous for his dire predictions in 2006 about the looming financial crisis that erupted in 2008, believes that the measures being applied in Spain to contain inflation “are not optimal”, because artificially making certain goods cheaper “transfers money indiscriminately to the private sector and hinders the European Central Bank’s task of cooling the economy”.
In his opinion, it would be better to concentrate aid on the neediest and most vulnerable families and companies.
“Spain faces elections this year, all governments before elections give fiscal stimulus to increase their chances of being re-elected. This is neither desirable nor optimal because it can eventually create a deficit and debt problem, which for now is not serious, but it is a major risk,” Roubini argues.
He points out that if this risk materialises, Spain would return “to the fatal loop of the previous crisis”, which involved bailing out the banks after the bursting of the real estate bubble.
“It’s the domino effect of non-financial debt becoming financial debt. We’ve seen that horror movie before,” he says.
“THE MOTHER OF ALL CRISES
Roubini also warns that the current episode of stagflation will be deeper than expected and that the high level of public and private debt may end up causing “the mother of all crises”.
Stagflation (stagnation plus inflation) and an eventual debt crisis are two of the great economic dangers that Roubini identifies in his latest book, “Megamenazas” (Deusto), although in an interview with EFE he says that high inflation is the clearest threat in the short term.
He adds on the immediate horizon the geopolitical risks arising from the invasion of Ukraine and the effect of China’s “zero covid” policy on global supplies.
In all, he lists a dozen potentially devastating overlapping “mega-threats” that include the “cold war” between China and the United States, the spread of populism, the climate emergency, the normalisation of global pandemics, demographic collapse, economic deglobalisation, job automation and rising inequality.
Roubini, who this week presented his book at the Rafael del Pino Foundation, explains that the increase in inflation in the last two years is a consequence of the “bad policies maintained for too long” to combat the effects of covid-19, with an excessive relaxation of fiscal and monetary policy that has given too many financial facilities.
“In Europe, bad luck has been more to do with dependence on Russian energy, but expansionary policies have also been part of the problem,” says the author, who is convinced that the consensus on inflation as temporary “is wrong”.
“The problem in fighting inflation is not just the risk of a hard landing of the economy, but the huge amount of debt in the system. Tightening financial conditions can worsen the recession and lead to defaults,” he says.
“That’s why I say that central banks are in a debt trap, because raising interest rates to fight inflation can not only shrink the economy but create a financial crisis,” he warns, predicting that “the mother of all debt crises may happen sometime this decade or next”.
“ADDRESSING LONG-TERM THREATS REQUIRES SACRIFICES”
Solutions to long-term threats such as “the ticking time bomb” of an ageing population, the automation of work or climate change “require structural reforms that are unpopular and difficult to take on in democratic countries”.
“Politics is the art of the possible, not the desirable,” says the economist, who points out that in the United States half of the population denies climate change and the other half does not want to make sacrifices, which makes it “mission impossible” to fight global warming.
“We should all be vegans, I tried it for three months and failed,” says the author, who says the only way to convince developing countries to go to “net zero” on greenhouse gas emissions is to “bribe them”.
