ECB playing a 'game of chicken', says PIMCO
The reluctance of the European Central Bank (ECB) to fill the role of 'lender of last resort' for struggling sovereigns makes the likelihood of a 'Minsky Moment' in Europe "uncomfortably high", according to PIMCO.
Austerity measures and deleveraging in Europe are contributing to a debt/deflationary feedback loop, which will see the eurozone economy shrink by between 1 and 1.5 per cent in 2012, said PIMCO managing director and portfolio manager Saumil H Parikh.
However, Europe's problems could become much worse if the ECB continues to refuse to engage in quantitative easing programs (at the moment, the ECB only has a clear mandate to maintain price stability).
The region faces the prospect of credit drying up and the system's deleveraging turning into a Minsky Moment, according to Parikh (ie, the inflection point when investors must sell assets to pay off debts, pushing down asset prices across the board).
"The eurozone economy cannot bear a concomitant deleveraging in sovereign and banking system balance sheets, given an already weak growth outlook," said Parikh.
The ECB is "playing a game of chicken with eurozone fiscal agents", and as things currently stand it is likely that the ECB will come to the rescue only when it is too late, said Parikh.
PIMCO chief executive Mohamed El-Erian recently told a Greek newspaper that a haircut of over 50 per cent may be necessary for Greece to restore its debt sustainability and set it on a path to growth in the medium term.
AUTHOR
Staff Writer
Money Management staff writers are writers who contribute to the website from time to time. If you would like to discuss the content contained within this article please contact us.
Recommended for you
Australian super funds have extended their winning streak into September, as strong global equities and resilient long-term returns boost member outcomes.
The super fund has appointed long-serving technology leader Richard Exton to its executive team, underscoring the fund’s digital transformation priorities.
Valuations of the major US tech companies are becoming elevated, according to UniSuper’s chief investment officer John Pearce, but not yet at bubble territory.
The country’s largest super fund has launched a £500 million UK housing platform to expand its living sector investments and support economic growth.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
215.17 3 y p.a(%)
2
Loftus Peak Global Disruption Fund Hedged
118.15 3 y p.a(%)
3
Global X 21Shares Bitcoin ETF
75.00 3 y p.a(%)
4
UBS Solactive Global Pure Gold Miners UCITS ETF Dis USD
61.11 3 y p.a(%)
5
Global X Ultra Long Nasdaq 100 Complex ETF
60.93 3 y p.a(%)
