Roubini sees Portugal bailout, possibly Spain as well

PRAGUE (Reuters) - Portugal will take an international bailout and Spain may be next as Madrid has underestimated the cost of cleaning up Spain’s financial system, economist Nouriel Roubini said on Monday.

Greece will eventually have to restructure its debt and a weak growth outlook will prompt central banks, including the European Central Bank, to ease policy further, said Roubini, who is known as Dr. Doom for predicting the credit crisis before 2007. He also warned on Monday that there was still the risk of a double-dip recession in the United States.

Bond markets have piled pressure on Portugal as the euro zone country most likely to need a bailout after Ireland, even though Lisbon has finished its debt issuance for this year.

“(A bailout) happened in Greece. It happened in Ireland, and it’s going to happen in Portugal,” Roubini told a conference in the Czech capital.

“The question is whether it could happen in Spain. The official funds are not sufficient for also bailing out Spain.”

Roubini said that although Spain had better budget and debt positions than other euro periphery states, high unemployment and the collapse of a property bubble meant that, like Ireland, its banking sector could need emergency aid.

“The eventual fiscal cost of cleaning up (Spain’s) financial system will be much larger than has so far been estimated by the government,” he said. “As we saw, those (European Union banking) stress tests were not stressful enough.”

Roubini, an economics professor at New York University, said eventually lenders would push bailout recipient Greece to restructure its debt as official creditors did with Russia and Argentina in past crises.

“Debt restructuring of the public debt of Greece is not a question of if, but rather when it’s going to occur,” he said.


Roubini said growth in all advanced economies, with the possible exception of Germany, would slow due to the end of an inventory-rebuilding cycle, the expiration of large stimulus packages, intensifying fiscal cutbacks, and a higher base effect on growth data.

He said despite a second round of quantitative easing, the United States could potentially face a double-dip recession along with Japan and euro zone periphery countries.

By his calculations, $1 trillion in quantitative easing -- more than the $600 billion allotted by the Fed for the next 18 months -- would only push up 2011 U.S. growth by 0.3 percentage points.

“The economic outlook over the next few quarters, the next few years, is going to be weak economic growth ... The policy consequence is going to be more monetary easing,” he said.

“The only central bank officially against further quantitative easing is the European Central Bank, but the pressure coming on sovereigns and the pressure coming on the financial sector in the euro zone are going to force the ECB to provide liquidity and increase base money.”

Additional reporting by Axel Bugge; Editing by Susan Fenton