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What has to happen to resolve the Greek crisis?
El-Erian: The Greek government [must] sell to the population the need for a sustained adjustment. The Europeans [must] decide once and for all that they are willing to put in new money in a very aggressive fashion. You need the IMF to be the credible conductor of what is a hard process. And you need the markets to calm down. Why do the markets bring out more sellers when Greek bond prices go down? Because investors have woken up to the fact that they're not dealing [simply] with interest rate risk, they're dealing with volatile credit risk that's exposing them to losses and reputational damage.
What do we need to see from Greece's Prime Minister?
An ability to convince Greek society that this is a long-term process in their interests. You remember Korea. [South Korea had a sovereign debt crisis in 1997.] In Korea, the citizens came together and supported the adjustment process. So far the Greek government has not been able to do that.
Does this spread?
It's spreading to other European countries. Where it's not spreading is globally. Short-term, the U.S. benefits. As my colleague Paul McCulley says, Sometimes you find your cleaner shirt, but sometimes you end up [getting] your cleanest dirty shirt. Despite the issues in the U.S., the U.S. is benefiting from a flight to quality.