Opinion

Mohamed El-Erian

Is Europe’s debt crisis a “Lehman Moment” for America?

Mohamed El-Erian
Jul 5, 2011 14:37 UTC

By Mohamed A. El-Erian
The opinions expressed are his own.

With its high unemployment and stretched balance sheets, today’s US economy can ill-afford a negative shock from abroad. Yet, this is what it is experiencing. And it explains why markets go through bouts of nervousness about the debt crisis in Europe, and why American policymakers are worried about a foreign financial situation that is getting worse by the day.

Europe’s debt problem is indeed a headwind for what remains a disappointing US economic recovery. It dampens America’s export prospects, can raise the cost of borrowing for some American companies and diminishes an already low enthusiasm among banks to lend to households and small companies.

Having said that, it is unlikely, though not inconceivable, that Europe’s debt crisis would constitute a “Lehman Moment” — a situation that totally paralyzes American economic activity, puts the country on the verge of a depression and triggers yet another round of extreme crisis management measures.

There is now broad-based recognition of America’s persistent economic weakness. Most recently, the Federal Reserve has been forced again to revise downwards its growth projections for both 2011 and 2012. Moreover, with refreshing candor that speaks well to the uncertainties felt by the average American, Fed Chairman Ben Bernanke acknowledged in his second ever press conference on June 22 that only part of the economic weakness is due to transitory factors such as higher oil prices and supply disruptions associated with the Japanese tragedies.

As Bernanke hinted, and as PIMCO’s analyses have demonstrated for a while, the US unfortunately faces four structural headwinds that are yet to be addressed properly by policymakers.

A live Q&A with Mohamed El-Erian

Jul 1, 2011 16:40 UTC

On Thursday, July 7 at 9am ET, CEO of PIMCO Mohamed El-Erian will be taking your questions live and answering them here. Please join us and leave your comments and questions for him below.

El-Erian’s previous columns have talked about the European debt crisis, how to make Egypt’s revolution successful, the IMF, Dominique Strauss-Kahn and Christine Lagarde and what he learned from his recent visit to Tokyo, Japan.

You can also post your questions on the Reuters Facebook page or send them over Twitter using the hashtag #askmohamed or @kherrup.

“Made in Egypt, by Egypt, for Egypt”

Mohamed El-Erian
Jun 29, 2011 20:39 UTC

It is a great pleasure to be with you today. I would like to express my deep appreciation to the Board of Trustees of the American University in Cairo … and extend my immense congratulations to AUC’s graduating class of 2011.

At this time, and more than ever, AUC and other centers of learning in Egypt occupy a very important position in a country that is in the midst of historic transformations. In today’s Egypt, universities are — and should be — much more than centers of learning. They are critical facilitators of beneficial change for millions of Egyptians; for current and for future generations; and for the well-being of a country, a region, and a global system.

People look to our centers of learning for education and thought leadership. They look to them for guidance in navigating complex economic, institutional, political, and social transformations. And they look for them to develop the future leaders of society at every level.

Europe struggles with bad choices

Mohamed El-Erian
Jun 6, 2011 14:50 UTC

By Mohamed El-Erian
The opinions expressed are his own.

Very few of us like to be confronted with unpleasant choices. If we are, we will tend to delay a decision. And if forced to make one, we will likely opt for the choice that, in our minds at least, seems less disruptive upfront — even if we know it is likely to involve discomfort down the road.

This simple human analogy is critical in understanding why Europe’s increasingly ugly debt crisis refuses to go away. It sheds light on the choices made up to now; and it speaks to why an increasingly incoherent policy response will likely end up in tears for Greece and potentially other European economies and institutions.

Let us wind the clock back to just over a year ago when Europe first bailed out Greece, a country no longer able to pay its bills. Together with two monetary institutions — the European Central Bank and the International Monetary Fund — European politicians faced unpleasant choices and had to respond. But rather than decisively addressing the problem, they essentially opted to kick the can down the road.

from The Great Debate:

Five ways to correct the Greek debt crisis

Mohamed El-Erian
May 3, 2011 19:10 UTC

By Mohamed El-Erian
This piece is the English version of the one that appeared in Handelsblatt. The opinions expressed are his own.

Not a day goes by without a flood of comments on Greece and its debt problems. They seem to come from everywhere. Some are later denied while others are left to stand, accompanied by a continuous string of worrisome data. In the process, even greater disorder is gaining hold of the country’s debt markets, with credit spreads exploding in an ever more alarming fashion.

There is a risk that all this could serve to confuse rather than illuminate the key issues that should be on the radar screen of many, whether they are policymakers or normal citizens. I can think of five such issues.

from The Great Debate:

An Egyptian song for all

Mohamed El-Erian
Mar 8, 2011 17:00 UTC

By Mohamed A. El-Erian
El-Erian is the CEO of PIMCO. He spent part of his childhood in Egypt where his father was a professor of international law at Cairo University and then served as an Egyptian diplomat and was elected to the International Court of Justice in 1978. The opinions expressed are his own.

For centuries, songs have provided populist narratives of historical movements. And, every once in a while, a song comes along that also succeeds in capturing forcefully the raw emotions of the moment. This is the case today with "Sout el Horeya," or the "Voice of Freedom," sung by Hany Adel and Amir Eid.

Coming out of Egypt, this song skillfully encapsulates the strong drivers behind the ongoing transformations impacting the Middle East and North Africa. It is a "must hear" for all those trying to understand previously-unthinkable developments in the region, including western governments whose sophisticated intelligence services have been caught flat-footed and are now playing rapid catch up.

from The Great Debate:

Resetting Egypt’s economy

Mohamed El-Erian
Feb 9, 2011 17:59 UTC

EGYPT/

By Mohamed A. El-Erian
El-Erian is the CEO of PIMCO. He spent part of his childhood in Egypt where his father was a professor of international law at Cairo University and then served as an Egyptian diplomat and was elected to the International Court of Justice in 1978. The opinions expressed are his own.

While Egyptians are yet to specify the final destination for their revolution -- and only they can, and should do so -- there is little doubt in my mind that the country is now on a new, bold and uncertain road toward greater democracy and individual freedoms. The next few days and weeks will be critical in determining the journey for a country that is central to the stability of the Middle East.

Undoubtedly, domestic political developments hold the key to what will happen. Egyptians need to converge on a common understanding and vision of "managed change". And this vision must satisfy the millions of Egyptians -- from all ages, religions and walks of life -- that unite in Tahrir (Liberation) Square and elsewhere to better influence and improve their destiny.

from The Great Debate:

It’s time for a wider European policy debate

Mohamed El-Erian
Nov 18, 2010 21:12 UTC

AUSTRALIA/By Mohamed El-Erian
The opinions expressed are the author's own.

It is safe to say that there is broad agreement on what is most desirable for solving the Irish crisis -- namely a mix of domestic policies and external financing finely calibrated to enable the country to grow strongly, create jobs, stabilize the banks, and overcome large and mounting indebtedness.

Unfortunately, what is most desirable is not feasible given the path Europe is embarked on; and, to make things even more complicated, what appears feasible to Europe is not necessarily desirable. As a result, Ireland finds itself stuck in an unstable muddled-middle. It can't get ahead of the crisis; it is far from a first best solution; and it confronts choices that are painful to implement and uncertain in outcome.

What is evolving in Ireland today resembles what was done in Greece six months ago. Expect the Irish government to commit to even greater budgetary austerity, its European neighbors and the IMF to provide massive funding, and the banks to receive liquidity, capital injections and other unconventional forms of support.

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