Pimco CEO: Europe’s bailout isn’t working
SAN FRANCISCO (MarketWatch) -- Europe’s bailout of countries on the periphery of the region isn’t working, according to the head of the world’s largest bond investment firm.
Mohamed El-Erian, chief executive of Pimco, the giant bond fund manager owned by Germany’s Allianz, said problems in Ireland’s banking sector last week renewed “solvency concerns” in Europe.
“Market measures of risk for peripheral European countries (Greece, Ireland, Portugal and Spain) are at or near danger levels,” El-Erian wrote in an article posted Monday on Pimco’s Web site.
That’s despite “exceptional” support from the European Central Bank, the European Union and the International Monetary Fund, he added.
“The failure to reduce risk spreads means that the public sector bailout is not working,” El-Erian wrote. “Rather than provide assurances of better times ahead and, thus, encourage new investments, ECB/EU/IMF support funding is being used by existing investors to exit their exposures to the most vulnerable peripheral European countries.”
“This situation cannot be sustained forever,” he continued. “It undermines any chance that the most vulnerable countries (e.g., Greece) have of limiting the collapse in their GDP and maintaining social cohesion; it contaminates the balance sheet of the ECB; it exposes the revolving nature of IMF resources to considerable risk; and it raises the risk of renewed contagion.” El-Erian’s comments came as Ireland prepares to borrow more money.
The cost to protect against a default by Ireland’s government jumped to a record Monday.
Credit-default swaps on Irish government debt climbed to a record 444.5 basis points, from 420.5 basis points on Friday, according to CMA Datavision.
Credit-default swaps are derivative contracts that pay out in the event of a default. The price of such protection climbs when investors are more worried the borrower in question can’t make payments. A CDS price of 444.5 basis points means it costs $444,500 a year to insure $10 million of debt for five years.
CDS on Portuguese government debt also climbed on Monday. The cost of default protection rose to 374.3 basis points from 365.3 basis points on Friday. The price of this protection hit a record of 460.05 in May, according to CMA Datavision.
Alistair Barr is a reporter for MarketWatch in San Francisco. |
发表于 2010-9-20 15:32
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