The European debt crisis has spread from Greece to Ireland, Portugal and Spain, and that spells trouble for Europe’s economy, says Mohamed El-Erian, CEO of money-management titan Pimco.
“Default is now no longer just a Greek concern; measures of default risk for Ireland, Portugal and Spain reached record levels this week,” he writes in the Financial Times.
“If these trends persist – and they will do so, absent major policy change – European governments will soon face cascading challenges reminiscent of what emerging economies experienced during their financial crises of the early 1980s, mid and late 1990s and early 2000s.”
Recall that a European-IMF bailout of Greece and the other weak European countries earlier this year was supposed to solve the problem, at least for a few years. “But (that) ended up by delivering only a few months,” El-Erian says.
“A more effective and credible approach is now needed, before the deterioration in the peripheral economies contaminates other countries.”
And, “The greater the delay, the larger the potential for Europe’s problems to disrupt what is already a fragile global rebalancing, and a stuttering American economic recovery,” El-Erian writes.
Jacques Cailloux, an economist at Royal Bank of Scotland, questions whether the European Central Bank is up to the task. “Does the ECB understand the concept of contagion?” he asks in a research report obtained by The New York Times.
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