El-Erian: The Eurozone Is Facing A Lose-Lose Situation

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Greece’s political impasse has entered a second week with the country failing to form a new government.Talks of a Greek exit have gained traction and it looks increasingly likely that Greece will face new elections on June 17. But what implications does this have for the eurozone?

In a Financial Times editorial, PIMCO’s Mohamed El-Erian writes that this political dysfunction is the last thing Greece needs right now, and that it puts the eurozone in a lose-lose position:

“It undermines the fulfillment of policy commitments made under the bailout provided by the Troika (European Central Bank, European Union and the International Monetary Fund). It also precludes the design of a better policy mix that would warrant disbursement of much-needed external support but under a more promising approach.

All this puts Greece’s eurozone partners in a very difficult position. Absent an urgent and imaginative response, they face a lose-lose situation: they lose by disbursing more good money after bad and see that too evaporate with no sustained benefits for Greek citizens and their European counterparts; or they lose by not disbursing and accelerating Greece’s slide into chaos, with unpredictable consequences for Europe and the world economy.

It is time for the eurozone to pivot away from an approach that offers little prospects of growth, jobs and financial stability. This involves a very difficult but needed redefinition of the eurozone, and a tricky combination of exit and different support mechanisms for countries that are not up to the new reality.”

Read the entire piece at the Financial Times >

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