FRANKFURT, March 18 (Reuters) - Bond fund giant PIMCO’s chief executive said he expected Portugal to be the next euro zone country to falter, according to an interview in German weekly Der Spiegel.
Asked whether he expected Portugal to have become the next Greece by the end of this year, Mohamed El-Erian told the magazine: “Yes, unfortunately that will be the case”.
Portugal’s economy is forecast to contract 3.3 percent this year - its deepest slump since the 1970s - as the government implements austerity measures under a 78 billion euro ($103 billion) bailout from the European Union and International Monetary Fund.
El-Erian, also co-chief investment officer of PIMCO, said he expected Portugal’s first bail-out package will be insufficient, prompting it to ask the EU and IMF for more money.
“Then there will be a big debate about how to split the burden between the EU, creditors, the IMF and the European Central Bank. And then financial markets will become nervous because they are worried about private sector participation,” he told the magazine in an interview published on Sunday.
El-Erian said this year would show whether the euro zone will fall apart or become a smaller but stronger entity, with the first option being “less likely but definitely not to be ruled out”.
He expected the euro zone could emerge from its crisis very quickly if its members “finally took the initiative”.
“There is a lot of money waiting on the sidelines to see what happens. A lot of money,” he said, adding executives would start investing again as soon as there was clarity on how the situation in the euro zone will develop.
PIMCO, with $1.36 trillion assets under management, is a unit of German group Allianz that is largely autonomous.
Asked about talk that PIMCO could be spun off from its parent, El-Erian said: “That is total nonsense”. ($1 = 0.7592 euro) (Reporting by Maria Sheahan; Editing by Dan Lalor)