PIMCO Chief Raises Alarm Over EU’s Greece Indecision

(June 20, 2011) – Mohammed El-Erian, chief executive officer of Pacific Investment Management Co. (PIMCO), the world’s largest mutual fund, has warned that the European Union’s indecision over a course of action for Greece’s debt crisis threatens to waste billions and could exacerbate the position of Ireland and Portugal.

“After a year, every indicator has unfortunately worsened, despite the incredible quantity of financial assistance,” El-Erian said in a June 19 interview with Italy’s Corriere della Sera daily. “All of this has terrible human consequences and it’s associated with a transfer of liabilities from private creditors to European taxpayers.”

“Very little is being done to deal with the excess of public debt, and the conditions for higher growth are not being put in place,” he continued. “Further on, if this approach is kept up, more money will be wasted to save private creditors and the risk of a disorderly restructuring of the debt will be greater.”

The greatest risk, he argued in a separate June 20 interview with CNBC, is that continued inaction will cause the Greek crisis to spread to other vulnerable countries. “This waiting around makes a solution even more difficult. The longer the situation festers in Greece, the more Ireland and Portugal will be treated the same [as Greece] by the markets.”

El-Erian’s warning comes on the heels of Alan Greenspan’s June 16 declaration that a Greek default was “almost certain.” A June 20 New York Times report claiming that American money market funds were still sitting on $360 billion worth of European bank short-term debt underscored fears that a Greek default could precipitate a double-dip recession.

El-Erian has spoken of a Greek default for some time, most recently on May 17 when he contended that the arrest of former International Monetary Fund (IMF) head Dominique Strauss-Kahn heightened the risk of a Greek default.