Tags: El-Erian | Europe | Russia | recovery

El-Erian: It's Springtime in Europe Despite the Russian Boot

By    |   Tuesday, 08 Apr 2014 10:43 AM

Europe's financial crisis has apparently been "relegated to the history books," which is remarkable considering the major geopolitical crisis currently on boil to the east with Russia, according to Mohammed El-Erian, chief economic adviser at Allianz.

El-Erian noted Russia's seizure of Crimea from Ukraine is the first annexation of European territory since World War II.

“Yet, rather than disrupt its growing confidence and composure, the Ukrainian crisis has been a catalyst for renewed political cooperation and solidarity within Western Europe. It has also fostered closer relations with the U.S.," he wrote in a column for Project Syndicate.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000


However, El-Erian asserted that Europe's nascent recovery still is dependent on some urgent courses of action.

"To put it bluntly, Europe's economy, and even more so the economies of Russia and Ukraine, is not particularly well-positioned to weather a further disorderly escalation of tensions. Enlightened diplomacy needs to replace the Cold War-style posturing and rhetoric that have re-emerged."

Also, the European Central Bank "needs to pivot from financial-crisis prevention — an area where it has performed impressively — to striking the delicate balance of supporting growth (and countering currency over-appreciation) without fueling excessive risk taking," El-Erian said. Quantitative easing, anyone?

In his assessment, El-Erian believes the eurozone needs to match its monetary union with deeper political integration and a "proper banking union."

He warned that if anti-establishment parties dominate the European Parliament election in May, it could sow more seeds of discord. "Most of these parties are committed to greater national isolation and, at least initially, would work hard to halt and reverse recent gains made on regional economic and financial integration," he predicted.

The Financial Times reported Europe has made great economic strides since July 2012, when European Central Bank President (ECB) Mario Draghi made his famous "Whatever it takes" statement about supporting the region's then-tottering financial system.

"But whatever the thundering herd of investors may think, it is too soon to declare that Mr. Draghi has won the war for the euro. The eurozone still faces deep underlying economic and political problems that are beyond the control of the president of the ECB and his colleagues," the Times cautioned in an analysis.

The financial plight of Europe simply may have moved from its poor economic outskirts to the core countries of the region, the Times suggested. While worries about Portugal, Greece, Ireland and Spain have diminished, concerns about deteriorating financial conditions in Italy and even France should be rising, the newspaper said.

If Russian forces move into eastern Ukraine, the European Union would be forced to impose stronger economic sanctions on Russia, which, in turn, would prompt the Russians to use the weapon of its energy exports on Europe.

"Much higher energy prices would have a severe impact on Europe's fragile economy. And a return to deep recession would almost certainly favor the radical fringes in Europe," the Times concluded.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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Europe's financial crisis has apparently been "relegated to the history books," which is remarkable considering the major geopolitical crisis currently on boil to the east with Russia, according to Mohammed El-Erian, chief economic adviser at Allianz.
El-Erian,Europe,Russia,recovery
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2014-43-08
Tuesday, 08 Apr 2014 10:43 AM
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