Monday, April 26, 2010

Mohamed El-Erian: Greece Is a Serious Problem

Joe Weisenthal is watching TV and reports on what he sees and hears:

PIMCO co-chief Mohammad El-Erian is on CNBC this afternoon talking to Maria Bartiromo.

His first point: unlike US equity investors, he is concerned about Greece, and says that if Greece isn't solved very fast, then this is a problem that will become a [big] problem soon.

He says there's nothing to feel good about until you see creditors step up to make concessions, and until some body step up to manage the bailout.

As for where he is investing client money, he's looking for quality -- so Germany and high-grade corporates.
He reiterated a point he's been making recently that Greece is Europe's subprime -- tiny, but with the potential to metastasize.

If the EU cracks, remember this is about the PIIGS, not just Greece, then a flight to German debt could occur. If there is a complete crack-up (a 20% possibility), where it becomes every EU country for itself, currency-wise, then a new German mark becomes the European gold standard of currencies. If you  own the German debt, you will own the new German currency.


  1. I've never understood what becomes of Euro-dominated debt if there is a complete crack-up. So just what do you have in a fistful of Euros in this scenario?

  2. Only real way out for Greece is to exit the Euro -- all Greek bank accounts, contracts etc are changed to "New Drachmas" Drachma collapses, Greek inflation takes off, investors in Greek debt take a bath, importer hell and exporter heaven for the real Greek economy. If you can stabilize without continued inflation, the real Greek economy does better than any other option. French, German Benelux Euro stays unchanged as a currency. Other PIIGS watch Greek Results very closely. Who knows which way they'll go.