Tags: Pimco | El-Erian | Markets | Soar | Europe | Crisis | Eases

Pimco’s El-Erian: Markets to Soar When Europe’s Crisis Eases

Wednesday, 20 Jul 2011 09:30 AM

Taking care of the U.S. debt ceiling and dealing with other "micro" issues are good for markets, but clearing up more underlying economic uncertainties around the globe are even better, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.

Markets soared on news that the Obama administration and Republicans in Congress may be close to lifting the government's $14.3 trillion debt ceiling and steer the country from the brink of a default.
That's good microeconomic news, but when dark clouds clear over Europe, markets will really rally, El-Erian tells CNBC.

"If you can align micro and macro, you can unleash an incredible rally in the markets."

Corporations are reporting healthy earnings these days but still aren't investing in new projects that would make a dent in high unemployment rates.

MohamedEl-Erian200ap-.jpg
Mohamed El-Erian
(Associated Press photo)
"There's a reason why people don't invest. They're not investing for today or the next quarter. They're investing for the next two to three years. We need an economic vision, which unfortunately, we do not have," El-Erian says.

"If you can get these macro clouds somewhat dissipated, the micro can really drive these markets but you really need the macro clouds dissipated."

In the U.S., political differences have been hampering recovery such as bickering over terms to lift the $14.3 trillion debt ceiling, while in Europe, politics are getting in the way of progress as are difficulties in fixing flawed economic fundamentals.

"Our issue is a political predicament. Europe is a political issue and an engineering issue."

Europe must work to contain the fallout from Greece, where debt concerns are threatening the financial system in a manner similar to the Lehman Brothers collapse in the United States in 2008.

If Greece should default, so might Italy, Spain and other economies.

"This is no longer about Greece," El-Erian says

"I think you can draw a line between Greece, Portugal and Ireland — where there is both a growth issue and a solvency issue — and then Spain, Italy and Belgium, where they have more time if they don't get technically contaminated."

Eurozone leaders are set to meet to discuss ways to prevent Greece's crisis from spreading elsewhere across Europe.

"For Spain and Italy, you need to provide a solution for Greece, plus a safety net to prevent contagion," says Antonio Garcia Pascual, chief southern European economist for Barclays Capital, according to the New York Times.

"But the inaction of policy makers is unhelpful. And we don’t have weeks. It’s a matter of days, especially with Italian and Spanish bonds at this level."

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Taking care of the U.S. debt ceiling and dealing with other micro issues are good for markets, but clearing up more underlying economic uncertainties around the globe are even better, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund. Markets soared on...
Pimco,El-Erian,Markets,Soar,Europe,Crisis,Eases
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2011-30-20
Wednesday, 20 Jul 2011 09:30 AM
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