Economist warns of double dip recession

A leading economist has warned that the ECB's decision to raise interest rates could lead to a double dip recession Ireland and other member states.

Speaking during an interview with the BBC, Prof Nouriel Roubini, a professor of economics and international business at New York University, said the move to increase rates, could "choke" struggling euro zone economies such as Ireland, Greece, Spain, Portugal and Italy.

Earlier this week, the ECB decided to leave interest rates at 1.25 per cent after raising them in April from a record low 1 per cent.

While ECB president Jean-Claude Trichet signalled that interest rates are unlikely to rise next month, he indicated that an increase may occur in July.

Speaking on the Today programme on BBC Radio 4, Prof Roubini, nicknamed "Dr Doom" for predicting the crisis two years before it struck, cautioned against further rate rises. "The euro becoming stronger and stronger is preventing the resumption of economic growth," he said.  "If there is not going to be economic growth their [peripheral euro zone economies] own fiscal problems - too much public debt, too much private debt - will never be resolved. There is a risk of a double dip."

The problem is not that the euro is weakening it is that it is strengthening too much, he argued.

"A weaker euro would help them to grow out of their own recessions and these rising interest rates by the European Central Bank is going to choke any possibility of economic growth because borrowing costs for the private sector are going to be rising. Maybe the ECB is tightening to much, too fast, too soon."

In April, Prof Roubini also warned that the Irish Government's rescue package aimed at saving the banks risked deepening the country's debt crisis.

"Taking all of the losses of the banking system and putting them on the balance sheet of the Government doesn't make sense," he said. "Eventually, the back of the Government will be broken."