Europe must raise the amount of funds it has earmarked to arrest its fiscal crisis and deploy a 2 trillion-euro ($2.7 trillion) “bazooka” before time runs out, said Nouriel Roubini, chairman of Roubini Global Economics LLC.

“I’m very concerned of things getting out of control,” Roubini said in an interview at Bloomberg’s Dubai office yesterday. “You need a huge bazooka of at least 2 trillion euros, but you can’t wait three months. You have to do it in the next few weeks.”

Three years after the collapse of Lehman Brothers Holdings Inc., financial shares in Europe are under assault and the cost of insuring bank debt is at records as the global recovery falters and the euro-region crisis weighs on the economy.

The euro dropped to an eight-month low against the dollar before European finance ministers meeting in Luxembourg today will grapple with how to shield banks from the debt crisis and mull a further boost to the region’s rescue fund.

The euro fell 0.5 percent to $1.3327 as of 12:07 p.m. in Tokyo. Stocks retreated, with the MSCI Asia Pacific Index dropping 2.9 percent.

Today’s meeting, starting at 5 p.m., was the original target date for approving an 8 billion-euro loan payment to Greece, the sixth installment of the 110 billion-euro lifeline put together at the start of the crisis in May 2010. That decision has been delayed until mid-October as Greek Prime Minister George Papandreou seeks to shore up the budget.

‘Big Elephants’

The Greek government said yesterday it approved 6.6 billion euros of austerity measures designed to help secure a rescue- loan payout and a second European Union-led bailout.

“Even if you have a debt reduction, that’s not going to restore growth unless you have a change in real exchange rates through a depreciation and you go back to national currencies,” Roubini said.

Europe’s financial leaders are fighting on multiple fronts, trying to extinguish the Greek crisis while insulating Italy and Spain and coming up with a formula for banks that the International Monetary Fund says face as much as 300 billion euros in credit risks.

“The problem isn’t that Greece is insolvent, but that the fact of having two big elephants in the room - Italy and Spain,” Roubini said. “They’re too big to fail but also too big to save. Even if they are illiquid, but solvent given austerity reform, they’ve already lost market credibility.”

There is a risk of a “self-fulfilling run” on their government debt, Roubini said.

‘Massive Steps’

“The steps that need to be taken to avoid a dissolvent situation are massive,” said Roubini, a professor at New York University’s Stern School of Business.

Among the measures needed to resolve the European crisis is an easing of European Central Bank policy and rates, a lowering in the value of the euro, a recapitalization of European banks and an “orderly process to allow the exit of Greece from the euro zone,” Roubini said. There also needs to be fiscal stimulus at the core of the euro zone to avoid a recession for all European countries.

“What is the likelihood of all of these things occurring in a coherent, consistent and realistic way to avoid the mess?” he asked. “I think it’s a low probability because of the political constraints.”

The European debt crisis could have consequences that would be “worse” than the collapse of Lehman Brothers, he said.

Roubini predicted the bubble in U.S. housing prices before the market peaked in 2006. His forecasts haven’t all been accurate. When the Standard & Poor’s 500 Index fell to a 12-year low on March 9, 2009, he said it probably would drop to 600 or lower by the end of that year. Instead, the U.S. equity benchmark gained 65 percent for the rest of 2009.