Fiscal union key to EU survival, says Morgan Stanley’s Stephen Roach

Europe is likely already in a mild recession, and the United States could very well join it, but the global economic turmoil is unlikely to reach the depths of the 2008 downturn, Morgan Stanley’s Stephen Roach said on Tuesday.

Unless Europe totally vaporises before our very eyes, and that is not my view, I think the likelihood of a major global shock that would prove so disruptive to the entire world economy, is low,” Roach, non-executive chairman of Morgan Stanley Asia told the Toronto CFA Society forecast dinner.

Roach — one of three presenters, along with Goldman Sachs strategist Abby Joseph Cohen and interest rate prognosticator James Grant — said the US economy was “barely” growing, and said he expects major Euro economies France and Germany to soon begin to contract. “To me, the major economies of the developed world are right on the brink of a recession and are likely to tumble into a recession over the course of the next 12 months,” he said.

He said the path out of trouble for the troubled Euro region is straightforward, if not exactly easy to make happen. “Europe needs a fiscal union,” he said.

“That requires 17 countries to come together and give up some of their sovereignty and recognise that without a cohesive fiscal union this monetary union is doomed to failure and will break up. It’s that simple.”

He was more upbeat on China, which has been his home for the last several years.