The debt crisis in Europe is an indicator of a “new normal” for the global economy, says the manager of the world's largest bond fund.
This new era is one which will be marked by below-average economic growth despite the recent applause in global markets that came in wake of a $1 trillion European rescue package, says Mohamed El-Erian, the chief executive officer of Pimco.
“What is happening in Europe is a vivid illustration of an underlying theme of the new normal,” he told Bloomberg.
There are “structural forces overwhelming traditional cyclical ones.”
Despite the size and scope of the rescue package, investors worldwide will continue to fret that governments across the globe have borrowed too much.
Pimco has used the phrase “new normal” in the past to describe the company's view of a world battling high unemployment rates, increased regulation and a waning influence of the United States in the global economy.
“It is even clearer today than it was a year ago that the global economy has embarked upon a multiyear journey that is subject to many tensions,” El-Erian says.
The European Union has urged member countries to rein in spending to keep the crisis from spreading further, adding it wants greater scrutiny on budgets before governments send them to legislative bodies for approval.
Such scrutiny would ensure that national governments' spending plans were "consistent with European objectives" and "lead to a substantial deepening and prudent widening of the economic and monetary union," says EU Economy Commissioner Olli Rehn, according to the Associated Press.
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