El-Erian: There’s Still Time to Solve EU Debt Crisis

By Todd Shields - Nov 13, 2011 12:00 PM GMT+0700

Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian said it’s not too late to solve the European debt crisis and that action is needed quickly.

“Europe can no longer kick the can down the road,” El- Erian, whose company manages the world’s biggest bond fund, said in an interview on CNN’s “Fareed Zakaria GPS,” scheduled for broadcast today.

“The good news is it’s not too late to solve,” El-Erian said. “The bad news is with Italy, the crisis has entered a very dangerous phase.”

Last week, Italy’s bond yields surged past the 7 percent threshold that prompted Greece, Portugal and Ireland to seek bailouts. Italy’s parliament gave final approval yesterday to a debt-reduction measure aimed at bolstering investor confidence.

Europe’s fiscal woes have turned into a “global crisis,” IMF Deputy Managing Director Zhu Min said Nov. 11. Asia-Pacific officials said they were bracing for a deterioration of Europe’s debt crisis that may push the global economy into a recession.

European finance ministers failed last week to bridge divisions over a permanent rescue fund. European Central Bank policy makers said the bank can’t do much more to stem the region’s debt crisis, suggesting they are reluctant to increase bond purchases to lower Italy’s borrowing costs.

Persuade Markets

Italy needs to persuade markets it’s serious about taking actions that will allow the economy to grow, said El-Erian, a former deputy director of the International Monetary Fund.

Asked if a Greek exit from the euro zone might spark panic about Spain, Ireland and Portugal, El-Erian said, “The risk is there.”

“We’ve waited so long that there is no cost-less solution,” he said. “Every solution has enormous consequences, collateral damage and unintended results.”

The European Central Bank can’t quell the debt crisis on its own and “individual countries need to step up their reform effort,” El-Erian said.

Pimco’s Italian debt is “de minimus,’ El-Erian said.

“We were concerned very early on, but people should be generally defensive, but also selectively offensive,” he said.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net