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Portfolio > Economy & Markets

El-Erian of PIMCO Predicts Greece, Others Will Default

By Marlene Y. Satter

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Mohammed El-Erian, head of PIMCO, the world's largest bond fund, said Wednesday that Greece and other European economies would default on their debts as a means of solving their problems over the next few years.

El-Erian (left) made the prediction in a video conference, during which he was quoted by Reuters as saying, "For the next three years, we're going to see different economies work out different problems. For European economies, especially Greece, it would be through default."

This prediction came despite the fact that Greece's government managed to win a confidence vote late Tuesday, a vital achievement if Athens is to receive the next round of rescue funding from the European Union (EU) and the International Monetary Fund (IMF). German and French officials began informal talks with banks in an effort to find volunteers to participate in the bailout, The Wall Street Journal reported Wednesday.

While El-Erian did not specify which other countries he thought would default, he did say that a Greek default would not trigger another financial crisis. "Ireland, Portugal, Italy and Spain would have to be involved. But Greece is too small in terms of economic impact."

It's not the first time El-Erian has predicted a Greek default. He has also criticized Europe's method of dealing with the Greek crisis, saying that putting so much money into Greece's economy without changing its approach risks wasting the rescue funding. "Nothing has been done to enhance growth," he said. "No single [Greek] indicator has shown strength. They are afraid a restructuring would hurt European banks."

El-Erian wasn't the only one to foresee a Greek default. Horacio Valeiras, chief investment officer of fund firm Allianz Global Investors Capital (AGIC), which is, along with PIMCO, a unit of German insurer Allianz, was also at the conference, and predicted that Ireland and Portugal would have to undergo debt restructuring. "We are not investing in Greece, Ireland, Spain and Portugal," he said, calling a Greek default "inevitable."

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