El-Erian PIMCO - on Joseph Stiglitz and Europe 22Nov11

22 Nov 2011 Bloomberg
He is right in the sense that the muddled middle which is where Europe has been is no longer sustainable. The crisis that started in the outer periphery - Greece - not only has shifted to the inner periphery and the outer core - Spain and Italy - but it has also impacted FRANCE. Which is the inner core. Europe has to make a choice if it wants to save the euro. One choice is full fiscal union and the other is a smaller Eurozone. That is a political decision Germany must take.

[What's the easier option?]

There are no easy options. That's why the process is paralyzed. Wherever policymakers look they see tremendous costs and disruptions. That is a problem that all of us have to internalize and understand. There are no easy solutions. Which of the two to take to save the euro....that is a pure political decision. But politicians need to make that decision quickly if they are to influence outcomes.

[Is Europe the single biggest threat to the US economy?]

Yes. The one thing we cannot cope with is a shock from Europe. Investors are stepping back from markets because of anxiety.

[What about the Fed and QE3?]

I smiled when Randall Kroszner said the Fed has been the only adult in town. It has taken the pressure off Washington. Other agencies have to step up. The effectiveness of the Fed has been declining unfortunately.

[If the Fed were to do something could that end up backfiring?]

Chairman Bernanke has said there are benefits and costs and risks. That balance is shifting from benefits to potential costs and risks. If they did QE3 there would get some benefits but also quite a few distortions and collateral damage put into the system that could take us years to overcome. You will see pressure on the currency and the functioning of the markets. More and more non-commercial forces will be determining market outcomes [Amazing]

Category:

People & Blogs

Tags:

• El
• Erian
• PIMCO
• on
• Joseph
• Stiglitz
• and
• Europe
• 22Nov11

[MrNChoudhury]

You know I just realized - if you look at the Bloomberg reporting of Stiglitz's comments at the bottom of the screen, he has turned anti-euro!!! Before Joseph Stiglitz was all for 'social solidarity' and 'political cohesion' with perhaps some concerns for the original policy flaws of the Eurozone and monetary union. He also thought Greece could have been saved. Now it looks like even Stiglitz has turned against it!

[schmoonzer1]

stupid comments. either make one or another bad decision. how about nations who spend and promise too much should stop that, and nations exporting realize you'll make much less down the road, so future benefit payouts need to adjust massively. not just a recommendation to the EU, but the US too. and i likely see China running into similar future problems, but maybe i'm wrong on that.