PIMCO's El Erian: EU Fumbling Greek Debt Crisis

Bailout efforts may be ‘wasted’ if approach is not changed

Mohammed El-Erian, head of PIMCO, the largest bond fund in the world, said in a Sunday interview that the European Union (EU) must change its approach to the Greek debt crisis or risk spending billions for nothing.

mohammed el-erian of pimcoAccording to Reuters, El-Erian (left), in an interview that appeared Sunday in an Italian newspaper, Corriere della Sera, said that Europe was risking billions by simply propping up the Greek economy without changing its method. “After a year, every indicator has unfortunately worsened, despite the incredible quantity of financial assistance,” he was quoted saying.

"All of this has terrible human consequences and it's associated with a transfer of liabilities from private creditors to European taxpayers. Why? Very little is being done to deal with the excess of public debt, and the conditions for higher growth are not being put in place," he said. "Further on, if this approach is kept up, more money will be wasted to save private creditors and the risk of a disorderly restructuring of the debt will be greater."

El-Erian's appraisal of the situation comes after an agreement on Friday, as previously reported by AdvisorOne, between France and Germany not to press for private investors to share in losses through so-called voluntary restructuring, in which they would be expected to exchange bonds for new ones with longer maturity dates or to purchase new ones as older ones mature.

(EU ministers early Monday decided to delay the Greek bailout package till July.)

Germany had been insisting, under pressure from taxpayers, that private investors shoulder some of the losses in a second Greek bailout; it was supported in this position by a number of northern eurozone countries. However, ratings agencies threatened to regard any such action as a default and rate Greece accordingly.

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