Roubini Expects European Union, IMF to Save Greece From Default

By Ryan Chilcote and Anastasia Ustinova

Feb. 3 (Bloomberg) -- The European Union or the International Monetary Fund will probably offer financial aid to Greece to help the country avoid default, economist Nouriel Roubini said.

“I expect there is going to be eventually some financial support,” Roubini said in a Bloomberg Television interview in Moscow today. That support will come “either directly from the European Union or the ECB or, as I suggest, Greece should be going to IMF to get an IMF package,” he said.

Greek Prime Minister George Papandreou yesterday pledged to freeze state wages as part of a three-year plan to reduce the EU’s biggest budget shortfall. Greece, which had a deficit last year of 12.7 percent of output, has struggled to convince investors that it can bring that ratio to within the EU’S 3 percent limit.

Skepticism about Papandreou’s plan drove the premium that investors demand to hold Greek 10-year bonds instead of benchmark German bunds to almost 400 basis points last week, the highest since the year before the euro’s debut in 1999.

Greece should adopt a “credible fiscal plan heavy on spending cuts that government can control,” rather than tax hikes and loophole closures that depend on “historically weak compliance,” Roubini and Arnab Das, of Roubini Global Economics, wrote in the Financial Times today.

“Failure to take the tough decisions necessary would draw attention to an uncomfortable historical truth: that no currency union has survived without a fiscal and political union,” Roubini and Arnab said.

To contact the reporter on this story: Ryan Chilcote in London at rchilcote@bloomberg.net