View the article online at http://citywire.co.uk/money/article/a597803
US fiscal cliff is as bad as eurozone crisis, says Bootle
The looming 'fiscal cliff' could be as destructive to the global economy as the eurozone crisis, warns Capital Economics' Roger Bootle.
The looming ‘fiscal cliff’ facing the US following November’s presidential election could ultimately prove as destructive as the eurozone crisis, Roger Bootle has warned.
Bootle, founder of Capital Economics, argued that there is a ‘reckoning coming in America’ since the country is ‘peculiarly’ bad at resolving the friction between its historically low tax regime and the penchant for high levels of public spending it has shown in recent memory.
‘The US faces some serious problems. Some think the situation is at least as serious if not worse than the one facing the eurozone.’
But while the US may be debt-laden and will struggle to overcome its political gridlock, Bootle is more upbeat regarding its ability to withstand the fallout from the eurozone’s deepening woes, pointing to the US’s relative strength during the Asian crash and Mexican peso crisis.
‘For the US, Mexico is a major trading partner and the Mexican peso crisis left barely a mark on the US economy. Neither did the Asian crisis, which was huge. Some of those countries suffered [GDP] falls of 20%, which is equivalent to the Great Depression.’
Speaking at a Citywire conference, Bootle said the eurozone should divide along north/south lines, with Germany leading the pack.
‘Germany ought to leave, taking with it close allies and satellites – the Netherlands, Austria and Finland to form a northern euro. I think it will be a lot less messy.’
However, he conceded that a Greek exit will be the more likely route and he expects the troubled Mediterranean state to be out of the euro before the year is out.
Bootle described himself as ‘eurosceptic’, pessimistic about the concept of the eurozone, since the region attempted political and fiscal integration ‘back to front’, uniting a single currency before fiscal unity.
‘They got away with it so far but they can’t get away with it for very much longer. Either they go the whole caboodle or they break up, and I can’t see how they would go the whole caboodle with the existing members.’
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