Europe Finally ‘Gets It’ on Sovereign Debt Woes, El-Erian Says: Tom Keene

Policy makers in Europe “finally” understand the severity of the region’s sovereign-debt crisis and the actions that need to be taken, according to Pacific Investment Management Co.’s Mohamed A. El-Erian.

“What I learned in Washington is that Europeans finally get it,” El-Erian, chief executive and co-chief investment officer of the world’s biggest manager of bond funds, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “They recognize they have deep problems, and they recognize they need to do something about it. And now they are going back and will try to do something about it. This was a very important wake-up call for Europe.”

Euro-region finance chiefs from the Group of 20 nations, meeting in Washington on Sept. 22, committed to boost the flexibility of their rescue fund and “maximize its impact” by the time of the next G-20 meeting Oct. 3. European Central Bank policy makers have indicated they’ll consider expanding liquidity provisions when they meet Oct. 6.

U.S. Treasury Secretary Timothy F. Geithner set the tone at the annual meetings of the International Monetary Fund and World Bank on Sept. 24 by saying failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” That gathering followed the G-20 session.

Don’t Underestimate Challenges

“But let’s not underestimate both the political challenges and the engineering challenges,” El-Erian said. “There is a lot that has to happen just today.”

European stocks climbed today the most this month amid speculation policy makers will increase efforts to contain the debt crisis. Asian shares and U.S. index futures advanced. The benchmark Stoxx Europe 600 Index gained by as much as 3.4 percent, the biggest intraday increase since Aug. 12.

German Chancellor Angela Merkel is hosting Greek Prime Minister George Papandreou for talks in Berlin today as credit- default swaps show a more than 90 percent chance that Greece won’t meet its debt commitments. Papandreou tests the strength of his parliamentary majority today as lawmakers vote on a property tax that’s key to persuading the European Union and International Monetary Fund to release an aid installment and avert default.

“Greece is like the toe that got infected,” El-Erian said in separate interview today on Bloomberg Television’s “In the Loop” with Betty Liu. “It was not dealt with, and it just spread throughout the entire body and is now threatening vital organs.”

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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