Pimco’s El-Erian: Lives of Europeans Are Not Improving

Friday, 22 Mar 2013 08:34 AM

By Michael Kling

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Although eurozone countries have reduced their deficits and decreased their borrowing costs, people in those countries have yet to see their lives improve, writes Pimco CEO and co-CIO Mohamed El-Erian in a blog for The Huffington Post.

In fact, economic conditions for many eurozone residents continue to deteriorate.

And the longer their lives remain mired in hardship, the harder it will be to turn things around, he warns in a guest blog for the Huffington Post.

Video:
Economist Predicts 'Unthinkable' for 2013

“With the exception of a few countries — particularly in northern Europe — the old continent is struggling; and the most vulnerable segments of the population are at great risk,” El-Erian says.

He says he gained insights from a taxi driver while on a business trip in Spain. Many of the taxi driver’s friends and family are unemployed, and they believe their prospects are dim while their savings continues to dwindle. In addition, they have little faith in their government’s ability to help them.

“For the average Spaniard,” he states, “the recent improvements in financial indicators have not materially boosted living conditions.”

As for the potential threat to bank deposits following the proposed, and rejected, levy on Cypriot bank deposits? That’s not a worry. Many Europeans like the taxi driver don’t have money to put in a bank.

But the challenges are not limited to lower and middle classes, El-Erian writes. High-level professionals also feel pressure and uncertainty. “People we know well are now unemployed, and many are increasingly unable to meet their mortgages and rents,” one professional told him.

“They too,” El-Erian notes, “are now sensing little relief from the improvements in the financial indicators.”

The ongoing situation undermines the population’s confidence in their governments, political system and political parties, he says. “The longer this persists, the harder it will be to pivot to the type of policy reforms needed to decisively avoid more years of economic difficulties.”

Economic indicators reveal that the eurozone was in a slowdown even before the Cypriot banking crisis. Business surveys revealed a downturn in March, even though improvement was expected, Reuters reported. Germany’s purchasing manager’s index, an indicator of manufacturing strength, declined, and the index fell to a four-year low in France.

“Today’s data adds to the argument that loose policy will be needed to stay in place,” Chris Walker, a currency strategist at Barclays, tells Reuters. “We expect the euro to head lower.”

Video: Economist Predicts 'Unthinkable' for 2013

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