The European Commission (EC) recently issued a pessimistic forecast for the economies of the eurozone, and if these bleak predictions turn out to be true, Europe could suffer more social and political problems, says Mohamed El-Erian, CEO of Pimco.
The EC forecasts that the 17-member eurozone economy will shrink 0.3 percent this year, after a 0.6 percent contraction in 2012.
“If these projections are to be believed, they point to greater socio-political fragility in 2013,” El-Erian writes in
Fortune magazine.
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And the EC’s estimate is actually stronger than Pimco’s, which calls for a 1.0 to 1.5 percent economic contraction this year.
“Specifically, the wave of popular dissatisfaction sweeping across Europe would persist,” El-Erian states.
Demonstrators have taken to the streets during Europe’s’ crisis in Italy, Spain and Greece to protest austerity measures imposed by governments.
“Street protests would remain a recurrent theme, especially in the peripheral economies,” El-Erian writes. “And traditional political structures would come under greater pressure, without a durable alternative emerging any time soon.”
The eurozone must work toward a common fiscal and banking policy and toward closer political integration, he says.
Many investors grew complacent with Europe after last year’s quantitative easing by the European Central Bank quelled the debt crisis.
But, ‘markets are a little bit too optimistic," Andrew Grantham of CIBC World Markets, tells Investor’s Business Daily.
Robert Johnson, director of economic analysis for Morningstar, writes on Morningstar.com, “I don't think we have heard the last of the European debt crisis.”
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