Bloomberg News

El-Erian Says Greek Bondholders Should Accept 50% Writedown

October 27, 2011

(Adds details of accord starting in third paragraph. For more on the European debt crisis, see EXT4.)

Oct. 27 (Bloomberg) -- Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian said Greek bondholders should accept the proposed 50 percent writedown included in a European Union plan aimed at stopping the region’s debt crisis.

“Fifty percent is the minimum that is required for Greece to restore solvency,” El-Erian said in an interview in Paris today. Bondholders “stand a better chance of reclaiming residual value” if they accept the proposal, he said.

European leaders agreed on the outlines of the new bond- exchange plan today after marathon negotiations on how to provide more aid for Greece. Private investors who take part will exchange their existing Greek bonds for new ones at 50 percent of face value.

The Greek government should also respond to the initiative by taking measures to spur the nation’s economy, El-Erian said. “I’d tell Greece that it should accompany this with reforms to promote growth,” he said. Pimco, the world’s biggest bond fund, doesn’t hold any Greek debt.

For El-Erian, a former deputy director of the International Monetary Fund, one of the biggest challenges across Europe and the developed world is reviving growth.

“People forget that there are both nominators and denominators in debt ratios,” he said. “Everyone focuses on the nominator -- the debt -- but the denominator is the ability to grow your economy.”

Without growth, Europe will struggle to end its sovereign debt crisis, El-Erian said.

“Concrete steps to promote growth and employment in the euro zone” are also needed, he said. “If the euro zone doesn’t grow robustly it will be difficult to overcome the sovereign debt issues and difficult to address bank fragility issues.”

--Editors: Eddie Buckle, John Simpson

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Andrew Davis at abdavis@bloomberg.net


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