To solve the euro-zone debt crisis, the euro needs to trade below parity against the dollar, the European Central Bank needs to cut interest rates and member states need to forge a fiscal unity, U.S. economist Nouriel Roubini said at a conference in London. Roubini warned that the crisis cannot be solved without economic growth and that all proposals to backstop European banks and come up with inventive solutions are "nothing but financial engineering."
"Unless you have economic growth [in the area] you're not going to solve the euro-zone crisis," Roubini said. He warned that the possibility of a weaker country exiting the monetary union is "still likely" and that such an event would trigger a global economic crisis, with developed economies sliding into recession. Roubini, who is chairman of Roubini Global Economics and a NYU professor, added that slowing global growth is being exacerbated by government efforts to push through austerity measures, especially in the U.K. "There will be a fiscal drag in the U.K., where frontloaded fiscal austerity is leading to a recession," he said.
Roubini also said the U.S. is similarly positioned for a downturn. "I think growth in the fourth quarter will slow to zero and we will see an economic contraction in the U.S. in the first quarter of next year," he said.