Tags: Pimco | El-Erian | European | Elections

Pimco's El-Erian: European Elections Complicate Outlook

Monday, 07 May 2012 07:41 AM

European elections over the weekend changed the political landscape for the continent and could complicate its way out of the debt crisis, says Mohamed El-Erian, CEO of Pimco, manager of the world's largest bond fund.

In France, socialist Francois Hollande swept into victory over Nicolas Sarkozy, a move seen as a proxy on the outgoing administration's support for belt-tightening austerity measures.

In Greece, established political parties failed to secure even 50 percent of the votes in parliamentary elections, with far-left and far-right parties gaining popularity.

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In Germany, voters in the Schleswig-Holstein state went to the polls, where established political parties saw competition from newer ones.

"Simply put, this translates into more fragmented European politics, at least in the short run," El-Erian writes in a CNBC column.

"A politically more disparate Europe will find it even more challenging to reach common ground on a range of important issues."

Many Europeans are growing weary of austerity measures such as tax hike and spending cuts, and they are correct that leaders cannot focus too much on streamlining economies without taking growth into consideration, El-Erian

The eurozone also needs stronger regional firewalls to contain the debt crisis and to bolster its banking system

"Europe’s election results sound an alarm for European integration and, consequently, the wellbeing of both the region and the global economy," El-Erian says.

"Let us hope that the inevitable short-term volatility is a precursor to a more decisive effort to deal with the continent’s festering problems."

Other experts agree that calls out for austerity of Europe's economic motor, Germany, will fall more and more on deaf ears.

"This shows that politics is getting out of control in Europe, the gap between politicians and voters is widening, that's what you see in Greece, that's what you see in France," says Steen Jakobsen, chief economist at Saxo Bank in Copenhagen, according to Reuters.

"Clearly, voters across Europe have started to send the message: 'we are not ready to do the reforms,' and that's worrying."

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