Roubini says Greece aid "step in right direction"

NEW YORK (Reuters) - European officials' consideration to assist Greece is a "step in the right direction," but a loan from the International Monetary Fund would be more beneficial in the long run, economist Nouriel Roubini told Reuters Insider television on Tuesday.

European governments have agreed in principle to help heavily indebted Greece, a senior German coalition source told Reuters on Tuesday, in what would be the first rescue of a euro zone member in the currency's 11-year history.

"It is a step in the right direction even if my favored choice for Greece is to get a formal IMF program," said Roubini, an economics professor at New York University who is known for his prescient call on the financial crisis.

"IMF lending is based on conditionality of achieving certain fiscal and structural goals. In the case of loan guarantees, it's very hard to make those loan guarantees conditional...you either give them -- or don't give them."

Roubini said the problems in Greece are the "tip of the iceberg" and that the high public deficit and loss of external competitiveness for a number of reasons is shared by Spain and Portugal -- and to some degree by Ireland and Italy.

But concerns go beyond Greece and other troubled euro zone members.

"Outside of the euro zone, we have decided in this financial crisis to socialize part of the private losses and now there is a massive releveraging of the public sector and also in many other countries -- the UK, Iceland, Japan and the United States," Roubini said. "The question of sovereign risk is going to become a critical issue in the next few years. This problem goes well beyond Greece and the euroz one."

Roubini said investors should avoid risky assets including corporate credit, commodities and equities, particularly because of their huge run-up in 2009 as well as the murky outlook for a strong economic recovery.

"Investors should be safe (rather) than sorry and stay in cash-like instruments or overweighting them," he said.

(Editing by Leslie Adler)