June 23, 2011
Pimco’s CEO and co-CIO Mohamed El-Erian has been making waves lately for predicting that Greece will eventually default. We emailed El-Erian on the road because we wanted more detail about what that could mean for Pimco and other investors as the bad news continues to come in. Here’s what he told us:
WSJ: What would a Greek default mean for Pimco?
El-Erian: Unless instructed otherwise by clients, we sold all our Greek bonds a while ago, well ahead of the sharp selloff. As such, we have no direct exposure to Greece.
WSJ: Are there other countries that you see working out their issues through default? If so, which ones and why?
El-Erian: Based on our debt sustainability analyses, Ireland and Portugal face challenges similar to Greece though the magnitudes differ.
In the case of Ireland, this reflects the government’s decision to assume the substantial obligations of the troubled banking system, thus contaminating the public finances which, hitherto, were relatively healthy. In the case of Portugal, the large debt overhang reflects years of fiscal slippages.
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