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Tags: El-Erian | Cyprus | job | bailout

Pimco’s El-Erian: Cyprus Deal Avoids ‘Immediate and Disorderly Financial Implosion’

By    |   Monday, 25 March 2013 12:21 PM

The bailout agreement Cyprus has reached with the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) is a step in the right direction, but it’s no cure-all, says Mohamed El-Erian, CEO of Pimco.

In exchange for 10 billion euros ($12.9 billion) in aid, Cyprus agreed to shut its second-largest bank — Cyprus Popular Bank. Depositors there above the insured limit of 100,000 euros will take a hit, as will bondholders.

“The markets are right this morning to initially welcome the latest Cypriot agreement,” El-Erian writes in a blog for CNBC. “It avoids an immediate and disorderly financial implosion, with potentially negative contagion effects for other European countries.”

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Implementation of the deal “will be very challenging,” he says.

“Europeans still need to find a way to combine immediate financial relief for Cyprus with realistic prospects for growth and job creation,” he notes.

Indeed, boosting the economy and employment is job one in Cyprus now, he adds.

“They also need to overcome the strong signals they gave out last week regarding coordination problems within the Troika [the EC, ECB and IMF], generalized bailout fatigue, breakage of all sorts of taboos and a willingness to shoot before aiming properly.”

UBS economist Reinhard Cluse shares El-Erian’s wariness. Banking is the dominant industry in Cyprus, so a contraction there will probably spark a “sharp drop” in the nation’s gross domestic product (GDP) this year and next, he writes in a note to clients that was obtained by Bloomberg.

It “must be doubted” that Cyprus will reach the eurozone’s debt-to-GDP target of 100 percent by 2020, Cluse says. “Cyprus’ sovereign debt problems will remain an issue of concern — for European policy makers and for the markets.”

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FinanceNews
The bailout agreement Cyprus has reached with the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) is a step in the right direction, but it’s no cure-all, says Mohamed El-Erian, CEO of Pimco.
El-Erian,Cyprus,job,bailout
309
2013-21-25
Monday, 25 March 2013 12:21 PM
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