Portugal will be the next Greece, predicts Mohamed El-Erian

There's a lot of money on the sidelines waiting for end to eurozone crisis, says boss of $1.3 trillion bond fund Pimco

Phillip Inman

guardian.co.uk, Sunday 18 March 2012 14.45 EDT


Graffiti in Lisbon reads 'Against the exploitation, general strike 22 March'. Portugal's largest trade union, CGTP, has called a national strike against labour market reforms demanded in the €78bn bailout to Portugal. Photograph: Hugo Correia/Reuters

Portugal will follow Greece to be the next eurozone country to falter, according the boss of the world's largest private sector bond fund.
Like Greece, it will need extra cash from Brussels to stop the country going bust, Pimco chief executive Mohamed El-Erian told the German magazine Der Spiegel.
Asked whether he expected Portugal to have become the next Greece by the end of this year, he said: "Yes, unfortunately that will be the case."
Portugal's economy is forecast to contract 3.3% this year as the government implements austerity measures under a €78bn (£65bn) bailout from the European Union and International Monetary Fund.
El-Erian, who is also co-chief investment officer of Pimco, said he expected Portugal's first bailout package to be insufficient, prompting it to ask the EU and IMF for more money.
"Then there will be a big debate about how to split the burden between the EU, creditors, the IMF and the European Central Bank. And then financial markets will become nervous because they are worried about private sector participation," he said.
Pimco, with $1.36 trillion assets under management, is a division of German insurance group Allianz.
El-Erian said this year would show whether the eurozone will fall apart or become a smaller but stronger entity, with the first option being "less likely but definitely not to be ruled out".
Several London-based think tanks expect Portugal to run out of cash before the end of the year and for Lisbon to call for a second bailout. El-Erian expected the eurozone could emerge from its crisis very quickly if its members "finally took the initiative".
"There is a lot of money waiting on the sidelines to see what happens. A lot of money," he said, adding executives would start investing again as soon as there was clarity on how the situation in the eurozone will develop.

Portugal will be the next Greece, predicts Mohamed El-Erian | Business | The Guardian