PIMCO's El-Erian Envisions Greek Default to Resolve Debt Problems

PIMCO's El-Erian predicts a Greek default, yet says a default will not prompt a new global financial crisis because the country is too small in terms of economic impact.

(June 22, 2011) — Mohamed El-Erian, chief executive officer of the Pacific Investment Management Co. (PIMCO), has predicted that Greece and other similarly afflicted European economies will default on their debts.

His viewpoint that default is the only option for Greece to escape its debt crisis comes shortly after the Greek government on Tuesday won a crucial vote of confidence. The vote increases the government’s chances of securing additional financial aid from the European Union and the International Monetary Fund (IMF) to avoid the eurozone’s first sovereign debt default.

“For the next three years, we’re going to see different economies work out different problems. For European economies, especially Greece, it would be through default,” El-Erian said, according to Reuters.

Without specifying which other countries would likely default, the manager of the largest bond fund in the world also indicated that European leaders are wasting money by contributing money to Greek’s stagnant economy.

El-Erian also noted that default will not jumpstart a new global financial crisis because Greece is too small in terms of economic impact. “Ireland, Portugal, Italy and Spain would have to be involved. But Greece is too small in terms of economic impact,” he asserted.

Riding on El-Erian’s remarks, Former Federal Reserve chairman Alan Greenspan similarly said last week that a Greek default is almost certain. Greenspan further noted that a Greek default could trigger a US recession.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742