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Market attention is focused on whether or not Greece will exit the eurozone.PIMCO’s Mohamed El-Erian says the developments in Greece are like a heart attack that could happen except it isn’t clear how big or serious it will be.
In a Foreign Policy editorial, El-Erian says a lag in policies right now could force Greece to default and exit the eurozone and this could pose a significant risk to the global economy.
He also says there are a series of steps that Europe should take to curb the shocks to the economy:
“Europe needs to urgently find ways to fortify internal circuit breakers that reduce the risk of Grexit contagion becoming a self-reinforcing phenomenon, with key leadership provided by the governments of the four largest economies (Germany, France, Italy, and Spain)…
In addition, to simultaneously secure the underpinning of what would remain of the eurozone (which could possibly be fewer than 16 countries), fiscal and growth compacts would need to be accompanied by a better policy mix at the national level as well as a more sustainable regional political integration process that lifts damaging leadership and legitimacy constraints. Finally, should Greece exit the eurozone, Europe must find a way to keep the country within the 27-member European Union, providing it also with stabilisation funding and technical assistance.
Like a doctor dealing with a heart attack patient, El-Erian argues “Political leaders have little time to waste if they wish to reduce the immediate disruptive impact of a Grexit — which, increasingly, seems inevitable — and to make the messy aftermath more manageable.”
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