Bloomberg News

Pimco Says Greek Woes ‘Unlikely’ to Bring Global Crisis

June 22, 2011

(Adds market reaction in the third paragraph.)

June 22 (Bloomberg) -- A global financial crisis similar to the one that followed the collapse of Lehman Brothers Holdings Inc. is “unlikely but not impossible” if Greece defaults, according to Pacific Investment Management Co.

“The scenario of Greece contaminating direct exposures is concentrated in Europe, especially France and Germany,” Chief Executive Officer Mohamed El-Erian said on a teleconference broadcast in Taipei today. “And in that sense it can be dealt with through recapitalization.” The debt-laden nation suffers from an “inability to grow” that is among “multiple” problems facing the global economy, he said.

Greek Prime Minister George Papandreou won a confidence vote yesterday, bolstering his new government’s chances of pushing through austerity measures to secure further international financial aid. Asian currencies strengthened against the dollar, led by the South Korean won’s 0.5 percent advance. The MSCI Asia-Pacific Index of shares climbed 0.9 percent.

Under its “new normal” philosophy, Newport Beach, California-based Pimco expects a shrinking global role for developed economies, as well as below-average economic growth and investment returns.

The world economy faces a “bumpy journey to a new normal,” El-Erian said. The balance sheets of developed economies are “contaminated” and the U.S. dollar, Japanese yen and euro are “structurally impaired.”

--With assistance from Yumi Teso in Bangkok and Andrew Janes in Jakarta. Editors: Sandy Hendry, Ven Ram

To contact the reporter on this story: Andrea Wong in Hong Kong at awong268@bloomberg.net

To contact the editor responsible for this story: Gregory Turk at gturk2@bloomberg.net


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