The global economy faces a meltdown as severe as the financial crisis of 2008 if the euro zone cannot resolve its escalating debt crisis, Nouriel Roubini has warned.
The message from the economist known as Dr Doom came as George Papandreou, the Greek prime minister, made a desperate plea for German support to help to save his debt-burdened country from default.
Mr Papandreou was set for talks last night with Angela Merkel, the German chancellor, as pressure built on Germany to help to secure a bigger euro rescue fund.
There was a 50 per cent chance of the global economy being dragged into a downturn as serious as the past financial crisis because of the worsening euro-zone sovereign-debt turmoil, said Mr Roubini, a professor at New York University.
"If things were to get disorderly in the euro zone, we do not rule out a another recession and financial crisis that could be as severe as the financial crisis of 2008," he said on a conference call from New York.
The chairman of Roubini Global Economics famously forecast the previous financial crisis that sent Europe, the US and many other economies into recession. His uncanny predictions on the scale of the slowdown earned him the nickname of Dr Doom.
The recovery has stalled as the euro-zone debt crisis has escalated and growth has slowed in major powers the US and China.
But investors appeared confident yesterday that European policymakers were preparing an action plan to stem the crisis. Germany's Dax and France's Cac 40 indexes were up about 4 per cent in early afternoon trading, while the UK's FTSE 100 was almost 3 per cent higher. Earlier, Japan's Nikkei Index closed up 2.8 per cent, Hong Kong's Hang Seng edged up 4.2 per cent and South Korea's Kospi climbed 5 per cent.
The Stoxx Europe 600 was up 3.35 per cent at 227.66 during afternoon trading. The MSCI Asia Pacific Index gained 3.8 per cent.
Talk in recent days has surrounded whether the European Financial Stability Facility could be bolstered. German legislators are due to vote on Thursday on enhanced powers for the Ä440 billion (Dh2.2 trillion) fund, which has already assisted Greece, Portugal and Ireland.
There is significant political and public opposition in Germany to expanding the power of the facility. But Germany would provide all the help it could to stabilise Greece, Ms Merkel said in a speech to a German industry federation event in Berlin.
"Whatever Germany can offer in terms of help, we will offer," she said. "We do this in a spirit of friendship, a spirit of partnership, not in a spirit of imposing something."
She also called on German politicians to rally behind her plan for a bigger euro rescue fund.
"If Europe isn't doing well, then over the middle term, Germany won't do well" she said.
Mr Papandreou had earlier tried to reassure investors that Greece could overcome its problems. "Yes we can," he said at the same conference. "Greece has the potential, Europe has the potential."