Nouriel Roubini has warned the eurozone faces a 'depression' if policymakers do not relax tough austerity measures.
The prize-winning economist said front-loaded austerity in the eurozone's debt-ridden states risked "turning a periphery recession into a depression".
Roubini's comments come after the International Monetary Fund's chief, Christine Lagarde, and the eurogroup of finance ministers' Jean-Claude Juncker clashed on Monday over how long Greece should have to reduce debt to GDP ratios.
Roubini, (pictured) speaking at a conference in Germany, said an extension to the timeline would be valid for Greece and for other peripheral countries that may need aid, such as Italy or Portugal.
"We could certainly postpone austerity, or do marginal stimulus on a temporary basis," he said. "Front-loaded fiscal austerity in the periphery could turn a recession into a depression."
He also warned policymakers only have five years to save the eurozone.
"Unless we restore economic growth in five years' time this will become financially, socially and politically unsustainable. Europe has not spent enough time talking about what are the intelligent and creative ways to jump-start economic growth in the periphery and the core."
Roubini said the eurozone needs to achieve growth soon, "because you are trying to stabilise debts and deficits as a percentage of GDP and if the denominator is falling you can do whatever you like with the numerator."
"You need austerity, otherwise you would have a crisis, but you can have a recession driven by front-loaded austerity. When people realise they have to tighten their belts, they need to be able to see light at the end of the tunnel."
Roubini welcomed the European Central Bank's moves so far to stabilise bond prices and keep markets open to most member states, but he said ECB president Mario Draghi could still do more by cutting rates.
"There is still room for cutting the policy rate, right now at 0.75%. Why is the ECB waiting? You could cut it to a negative level," he said.
In a wide ranging speech, Roubini also predicted there will be a resolution to the US fiscal cliff.
However he warned the current impasse could still shave up to 1.5% from GDP, and rattle markets. "Fiscal austerity is necessary, but when it is front-loaded, raising taxes and cutting transfer payments, it affects economic activity in the short term," he said.
This article first appeared in Investment Week's sister title Investment Europe.
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