Tags: El-Erian | sanctions | Russia | recession

El-Erian: Sanctions on Russia Could Cause Recession — for Western Europe

By    |   Thursday, 27 March 2014 06:47 PM

While intensified sanctions could create serious problems for Russia, they could boomerang back to damage the West as well, says Mohamed El-Erian, former CEO of Pimco.

Sanctions are supposed to be "a means to an end"—moderating Russia's behavior in Ukraine, he writes on The Huffington Post. "By potentially also pushing Western Europe back into recession, stepped-up sanctions could also be an end in themselves."

Why would Western Europe suffer?

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It accounts for about 40 percent of Russia's trade, El-Erian notes.

Even under the unlikely assumption that Russia doesn't retaliate over Western sanctions, "its weaker economy would quickly translate into lower sales by Western European companies to the world's eighth largest economy, as well as less certain input supplies from there," he writes.

Of course, it's almost certain that Russia will retaliate, and there's a good chance it would cut off energy supplies to Western Europe, El-Erian says. The region can't easily erase its dependence on Russian energy supplies.

"Yes, deeper sanctions would hurt Russia," El-Erian says. "But likely at a considerable cost for Western Europe, too. Under most scenarios, a back-and-forth escalation in sanctions would push both Eastern and Western Europe into recession."

Meanwhile, legendary investor George Soros, chairman of Soros Fund Management, says that Western sanctions against Russian oligarchs could have the perverse effect of helping Russia's economy.

"The Russian economy is very weak because the oligarchs who run the country don't trust it and they send their money abroad," he told Marketplace."So if you stop the inflow of funds, that will bring the Russian economy to its knees."

But the sanctions make it more difficult for the oligarchs to take their money out of Russia, thus boosting the Russian economy, Soros said.

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While intensified sanctions could create serious problems for Russia, they could boomerang back to damage the West as well, says Mohamed El-Erian, former CEO of Pimco.
El-Erian,sanctions,Russia,recession
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2014-47-27
Thursday, 27 March 2014 06:47 PM
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