The fate of the Eurozone in the hands of Germany

While the European economy has received support from declining oil prices and a weak euro, renowned economist Nouriel Roubini says there are many challenges to be faced to ensure a sustainable economic recovery, especially in Germany.
In his latest report, Roubini lists five major obstacles to the eurozone that need to be removed to ensure growth. First, Roubini noted Germany's current account surplus, which is projected to rise to 10 percent of the country's GDP due to a weak currency and low borrowing costs in the region.

"Germany should adopt fiscal stimulus policies to ensure higher spending on infrastructure and public investment, and faster wage growth, which would increase domestic spending and reduce the country's balance of payments," he said. "If Germany does not move in this direction, then one should not count on an active and sustainable recovery of the eurozone." Growth potential is also constrained by Europe's proximity to unstable neighboring regions such as Ukraine and Russia, as well as the Middle East.

According to Roubini, European recovery is also hampered by an incomplete monetary union, which requires the development of a fiscal union, an economic union, and ultimately a political union to ensure long-term viability. “But the process of further European integration has reached a dead end,” he said. Other challenges facing the region include political risks, mainly in Greece and Spain, and debt sustainability.

While European Central Bank policies help keep borrowing costs low, private and public debt in peripheral countries is growing as nominal GDP barely increases, Roubini said. “Therefore, debt sustainability will remain an issue for these countries in the medium term,” he added.