Pimco's El-Erian: Greek's financial crisis will get worse

Greece’s fiscal crisis will “get worse” as the latest surge in its borrowing costs deters investors, Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co., wrote in the Financial Times. Two weeks after European Union leaders agreed to a standby aid blueprint for the nation, Greece’s bonds today fell for a second day, driving the premium investors demand to hold 10-year securities instead of benchmark German bonds to 407 basis points. “Unfortunately it is likely that things will get worse for Greece before they get better,” said El-Erian, whose Newport Beach, California-based company runs the world’s largest mutual fund. “In the short run, the persistence of alarming risk spreads will lead to even more cautious behavior among depositors and investors.” Greek Prime Minister George Papandreou and his EU counterparts had reckoned the creation of a contingency rescue plan involving the International Monetary Fund would pare Greece’s borrowing costs as it tries to plug the region’s largest budget deficit. The higher interest rates will make it more difficult for the country to raise the 11.6 billion euros ($15.5 billion) it needs by the end of May, making it more likely it will require outside help. “In fact, market measures of risk signal more concern today than before the announcement,” said El-Erian. “Late movers will sell Greek assets rather than buy, putting even greater pressure on the government’s ability to raise sustainable funding for its forthcoming debt maturities in May.”