Tags: Pimco | El-Erian | italy | Next | European | Disaster

Pimco’s El-Erian: Italy May Be Next European Disaster

Monday, 11 Jul 2011 09:22 AM

As the world watches Europe work out problems in debt-ridden Greece, savvy investors should keep an eye on Italy, home to a much larger economy and possibly a source of fresh problems, says Mohamed El-Erian, co-head of Pimco, the world's largest bond fund.

Concerns have persisted that Greece may default on its debts, which could send shockwaves through European banks and beyond.

Should that happen, other eurozone economies would feel the heat, including Italy.

"Compared to the three countries already in the European financial ICU (Greece, Ireland and Portugal), Italy is a significantly larger economy; and it plays a more important role in the Euro-zone," El-Erian writes in a CNBC guest blog.

MohamedEl-Erian200ap-.jpg
Mohamed El-Erian
(Associated Press photo)
"Persistent market dislocations in Italy would mark a significant morphing of the European debt crisis. And it is not as if European officials are anywhere near getting their arms around the problem in Greece. Indeed, the insufficiently coherent policy response is one of the reasons why damage continues to spread throughout Europe."

Stress on the Italian economic and financial sectors could quickly spread to Spain.

"Market participants should keep a close eye on all this," El-Erian says.

Italy is home to the eurozone's third-largest economy, and European officials are worried that economic malaise in Athens could spread to Rome and wreak havoc.

"We're very worried by Italy," a senior European Central Bank official tells Reuters.

European leaders, meanwhile, remain determined to avoid a Greek default.

"All of the efforts so far have been in order to avoid default because no one is quite sure what its knock-on effects would be," one EU official says, Reuters adds separately.

"Nobody wants a default — it's not an option."

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As the world watches Europe work out problems in debt-ridden Greece, savvy investors should keep an eye on Italy, home to a much larger economy and possibly a source of fresh problems, says Mohamed El-Erian, co-head of Pimco, the world's largest bond fund. Concerns have...
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Monday, 11 Jul 2011 09:22 AM
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