Joseph Stiglitz, a Nobel Prize-winning economist, said Europe risks falling back into recession as governments slash spending in a bid to narrow their budget deficits.

"Cutting back willy-nilly on high-return investments just to make the picture of the deficit look better is really foolish," Stiglitz said today, according to Bloomberg News.

Governments that use the euro currency are cutting spending in a bid to bring their deficits below the 3% of GDP limit imposed by the European Union. Earlier this year, the Greek crisis eroded investor confidence in the 16-member currency union.

"Because so many in Europe are focusing on the 3 percent artificial number, which has no reality and is just looking at one side of a balance sheet, Europe is at risk of going into a double-dip," Stiglitz said.

The euro zone's average budget deficit will grow to 6.6% of GDP this year, the European Commission predicts. Ireland currently has the euro zone's largest deficit, at 14.3% of GDP. That will narrow to 11.7% this year, excluding the costs of bank bailouts.