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Weak eurozone countries still in spotlight: analysts

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(FRANKFURT) - Debt in Greece and Portugal remains the subject of speculation among analysts despite a second rescue for Greece intended to stop contagion in the eurozone, with a US economist saying there is a 30-percent risk they will leave the single currency area.

"I see the chances of Greece or Portugal leaving the eurozone at 30 percent," New York University economics professor Nouriel Roubini told the German weekly Die Zeit in an interview to be published on Thursday.

His comments were released by Die Zeit in German.

Roubini, dubbed "Dr. Doom" for his early warnings about the global economic crisis, underscored an estimate that Greece's debt would reach 166 percent of its national output next year.

"The country has no liquidity problem, it is insolvent," he concluded.

Last week, eurozone leaders agreed on a second rescue package for Athens worth 109 billion euros ($158 billion), plus about 50 billion euros from the private sector up to 2014 alone.

The rescue included a contribution from the International Monetary Fund, but once an initial wave of relief passed, analysts pointed out obstacles to it being implemented.

Roubini estimated that the plan would buy time for Greece, saying eurozone politicians "may muddle through for another five years," but that leaders would ultimately face "very tough decisions."

He was no less pessimistic regarding Ireland and Portugal, which have also received aid from the European Financial Stability Facility, forecasting that "in a few years the present rescue plan for Portugal will break down. The same goes for Ireland."

The head of the German economic research institute Ifo, Hans-Werner Sinn, reiterated doubts of his own first expressed in an interview with the weekly WirtshaftsWoche on July 11 that looked at the Greek economy.

In a note sent on Wednesday, Sinn stressed that "much worse" than Athen's debt problem was the fact that Greece was no longer competitive on global markets.

"In order to solve the competitiveness problem, Greece will have to become twenty to thirty percent cheaper," Sinn estimated.

"It has to perform an internal or an external devaluation. There is no way around it."

An internal devaluation would mean harsh austerity measures that could spark more civil unrest" and company bankruptcies, he warned.

An external devaluation would entail Greece leaving the eurozone along with heavy losses for investors, Sinn added.

"In the end, it comes down to the question of whether only the balance sheets are to be scorched, or the bank buildings as well. Policy-makers will not be able to duck this realisation much longer," he warned.

On the other side of the Atlantic meanwhile, the United States was battling "serious problems" with debt, infrastructure and education, Roubini told Die Ziet.

"All western industrialised countries have debt problems and unfortunately there is no quick fix for that," he noted.

The widepread caution in investment circles regarding the medium to long-term effectiveness of the complex eurozone rescue arranagements announced on Thursday is apparent in the fact that the debt bonds issued by weaker eurozone countries have not risen significantly since the announcement.

They tended to fall slightly on Wednesday, automatically pushing up the fixed yield on these bonds, a sign that the governments concerned are still faced with unbearable interest rates if they want to borrow for 10 years.


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