If you thought you could finally breathe a sigh of relief about Europe after the latest news about agreement between Greek politicians on new austerity measures, then you are wrong.PIMCO CEO and co-CIO Mohamed El-Erian is out with a new FT column to crush your dreams. While he calls the latest accord “courageous and ambitious,” in the long run, he says, there’s little chance it will work.
He lists two reasons for this:
- “First, it is never easy to reach agreement among parties that have very different perceptions of both the problem and its solution.”
- “The second factor complicating the process is that none of the interested parties has enough overall responsibility for the adjustment programme…The history of debt crises suggests that a lack of “ownership” translates into a lack of conviction. As a result, principals – be they government leaders, the ECB and IMF, or those negotiating on behalf of private creditors – find it difficult to sell the agreement to constituents.”
That spells trouble in an already tenuous balance between a suffering Greece and an angry German-led troika. Because no one can agree on or be held completely accountable for the problem, there’s little hope of actually establishing policies effective at tackling the deeper problems.
I suspect all three parties to the negotiations know in their heart that their latest agreement, brave as it is, will only last a few months at best. Yet no one wants to be seen to be responsible for a change in course at this stage, fearing they could be blamed for a disorderly default and a potential exit from the eurozone.
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