Bloomberg News

Bond Markets Forcing Europe’s Austerity, Pimco’s Clarida Says

May 22, 2012

European leaders debating policies to increase economic growth are limited by bond markets that have shut out some borrowers, according Richard Clarida, global strategic adviser at Pacific Investment Management Co.

“Growth is sort of like mom and apple pie,” Clarida, who served under President George W. Bush as assistant Treasury secretary for economic policy, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “Who’s against a growth agenda? The challenge is turning that into an operative policy within the framework of Europe.”

Greek bonds due in 10 years yield 28.3 percent, compared with 6.1 percent for similar maturity Spanish debt, 11.8 percent for Portuguese securities and 1.5 percent for German bunds. Gross domestic product among the euro member states will shrink 0.1 percent this year and expand 0.9 percent in 2013 instead of posting growth of 0.2 percent and 1.4 percent as predicted last November, the Paris-based Organization for Economic Cooperation and Development said today.

“In a lot of these countries, austerity isn’t really a choice -- they can’t borrow in private markets, they have to have an austere policy,” said Clarida of Newport Beach, California-based Pimco, manager of the world’s biggest bond fund (PTTRX:US). “At the margin, you might get some infrastructure funds here or there, you may phase in some policies. But we’re in for an austere period in Europe without question.”

Europe’s Choice

European Union leaders are preparing to gather in Brussels tomorrow to discuss how to revive growth and grapple with a political impasse in Greece, where voters rejected austerity measures in elections on May 6. The euro has dropped more than 3 percent this month on concern that Greece may opt to leave the 17-nation monetary union.

Greece “will either have to exit or Europe will have to swallow it and essentially allow them to default again,” Clarida said. “There’s overwhelming political support for them to default again. And then Europe will have to make a choice -- do we want Greece in, having defaulted on hundreds of billions of euros of debt, or face the prospect of what would be a very disorderly exit?”

To contact the reporters on this story: John Detrixhe in New York at; Betty Liu in New York at

To contact the editor responsible for this story: Dave Liedtka at

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