PIMCO’s Mohamed El-Erian has suggested Europe may have to act sooner than they hope in providing a solvency backstop to the eurozone’s fringe.
Writing in the FT, El-Erian notes that while leaders have come to terms with the fact that this is more than a liquidity crisis, they still plan on waiting until 2013 to have a real solvency solution in place.
That may be too long, according to El-Erian, especially if the crisis spreads beyond Ireland, to Portugal and Spain.
What El-Erian seems to be suggesting is that Europe needs to establish a solvency solution rapidly, that would allow states to default on their debts and remain in the eurozone.
This solution may need to be ready if the crisis expands to Spain, as the costs of providing liquidity support to Spain may be too high for the eurozone’s solvent core to handle.
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