Europe Close to Banking Crisis, El-Erian Says: Tom Keene

Pacific Investment Management Co.’s Mohamed El-Erian
Pacific Investment Management Co.’s Mohamed El-Erian. Photographer: Ramin Talaie/Bloomberg

Pacific Investment Management Co.’s Mohamed A. El-Erian said organizations such as the International Monetary Fund need to act with European banks at risk of being engulfed in the region’s sovereign-debt crisis.

“We’re getting close to a full-blown banking crisis in Europe,” El-Erian, Pimco’s chief executive officer and co-chief investment officer, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We are in a synchronized global slowdown. There’s very little confidence in economic policy making both in Europe and the U.S.”

The World Bank and the IMF meet Sept. 23-25 in Washington as European officials work to keep the currency union from unraveling while weighing whether to allow Greece to default. French banks have become a focal point because of their holdings of bonds issued by the euro region’s most-indebted nations, topping the list of Greek creditors with $56.7 billion in overall exposure, according to a June report by the Bank for International Settlements.

“The light should be flashing yellow, if not red, in Washington, D.C., and hopefully the IMF meeting can be the catalyst for getting to a common analysis and setting the stage for the G-20,” El-Erian said from Pimco’s Newport Beach, California-based headquarters. The firm oversees about $1.34 trillion of assets as the world’s largest manager of bond funds.

Funding Speculation

BNP Paribas SA, France’s biggest lender, was forced to deny an opinion piece in The Wall Street Journal today that cited an unidentified official as saying the bank could no longer borrow in dollars.

German Chancellor Angela Merkel said she’s “very optimistic” that Finland’s demands for special collateral as part of the Greek bailout package will be met. Greek Prime Minister George Papandreou will hold a conference call with Merkel and French President Nicolas Sarkozy tomorrow to discuss developments in Greece and the euro area.

In the U.S., President Barack Obama called on Congress on Sept. 8 to pass a plan that would inject $447 billion into the economy through infrastructure spending, subsidies to local governments to stem teacher layoffs and cutting in half the payroll taxes paid by workers and small-business owners. Tax cuts account for more than half the dollar value of the stimulus.

Obama’s job plan is an “important first step,” El Erian said. “It remains to be seen whether it will be enough. It has taken way too long.”

‘Further Behind’

Job growth stalled last month and the unemployment rate has hovered around 9 percent for more than two years. Obama’s job-approval ratings are falling to new lows as public doubts about his stewardship of the economy rise. Public opinion of Congress has dropped even lower.

“Not enough Republicans have come on board,” El-Erian said. “When President Obama started talking about how he was going to pay for all this, he started getting a lot of opposition. We need to overcome this as a nation, otherwise we’re going to fall further behind.”



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