Tags: Pimco | El-Erian | Eurozone | Crisis

Pimco’s El-Erian: Eurozone Crisis Can Still Supply Plenty of Fireworks

By    |   Tuesday, 03 Jul 2012 12:22 PM

Europe may wreck our Fourth of July party, Pimco CEO Mohamed El-Erian warned in a guest blog for CNBC.

Some are optimistic that the better-than-expected result of the recent European summit is a step to resolving the crisis, he noted. We will know this week if they're right, according to El-Erian.

Summit leaders agreed to buy bonds of struggling eurozone countries and to allow their rescue fund to give aid directly to Spanish banks.

Unfortunately, the government leaders are still falling short, El-Erian wrote.
Their timetable is too timid, the operational procedures are too cumbersome, and emergency funding lines are inadequate. Plus, differing statements from national leaders are confusing the situation.

Thursday, investors will learn if the summit "provides sufficient air cover" for the European Central Bank to cut its 1 percent benchmark rate and support peripheral bonds.

"It is not clear whether the central bank's governing council is there yet," he warned.

Greek government negotiations with the IMF, ECB and European Union are another question mark. Unfavorable economic and financial developments have overtaken assumptions used for early agreements.

"It is not clear," El-Erian wrote, "who would put up the money to compensate for both this and for the new government's electoral commitment to stretch out the pace of domestic economic adjustment."

Friday, U.S. employment figures could help make or break the euro project, he wrote, warning that a report of less than 100,000 new jobs will mean more problems for Europe.

El-Erian isn't the only one skeptical about the summit. The countries that are supposed to pay the rescue funds are the very ones who need it, Jeffrey Sica of SICA Wealth Management, wrote in an opinion piece for Forbes.

The so-called solution will unravel in a matter of week, Sica predicted.

Most eurozone countries are broke. Paying for the emergency fund will be mostly up to Germany, but it would have to give up almost 50 percent of its GDP to completely bail out the European Union, he warned.

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Tuesday, 03 Jul 2012 12:22 PM
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