A global financial crisis similar to the one that followed the collapse of Lehman Brothers Holdings Inc is “unlikely but not impossible” if Greece defaults, according to Pacific Investment Management Co (Pimco).
“The scenario of Greece contaminating direct exposures is concentrated in Europe, especially France and Germany,” chief executive officer Mohamed El-Erian said during a teleconference broadcast in Taipei yesterday. “And in that sense it can be dealt with through recapitalization.”
The debt-laden nation suffers from an “inability to grow” that is among “multiple” problems facing the global economy, he said.
Greek Prime Minister George -Papandreou won a confidence vote on Tuesday, bolstering his new government’s chances of pushing through austerity measures to secure further international financial aid.
Asian stock markets jumped yesterday after Greece’s embattled prime minister won a confidence vote.
Tokyo rose 1.79 percent, or 169.77 points, to 9,629.43, Seoul closed 0.77 percent, or 15.73 points, higher at 2,063.90, and Sydney ended up 0.54 percent, or 24.4 points, at 4,532.6.
Hong Kong climbed 0.69 percent, Taipei closed 0.27 percent higher and Shanghai rose 0.11 percent.
“The Greece situation in recent days has at least shown signs of progression rather than -stagnation,” said Tim Waterer, senior currency Dealer at CMC Markets in Sydney, according to Dow Jones Newswires.
“The march higher in equities ... provided some comfort to a market which is desperate to latch onto any hint of good news,” he said.
The news from Europe provided fresh buying impetus for the euro in the afternoon in Asia after it was sold for profit on the back of overnight gains.
The euro edged up to US$1.4411 in Tokyo afternoon trade from US$1.4408 in New York late on Tuesday. The European single currency also picked up to ￥115.59 from ￥115.53, while the US dollar edged up to ￥80.30 against ￥80.22.
The IMF has warned -European leaders that failure to take decisive action on the debt crisis risks triggering “large global spillovers.”
The EU also “confronts a moment of truth and needs to course correct the setup of the region to enable both debt sustainability and high economic growth,” El-Erian said.
The world economy faces a “bumpy journey to a new normal,” he added.
The balance sheets of developed economies are “contaminated” and the US dollar, Japanese yen and euro are “structurally impaired,” El-Erian said.
With the breathing space provided by the confidence vote, attention could now shift to the US economy and a key meeting of the Federal Open Market Committee, the body within the US Federal Reserve that sets interest rates.
The committee began its two-day meeting on Tuesday, and was expected to announce yesterday that it would allow its US$600 billion asset purchase program to expire as scheduled at the end of this month.
The end of the political stalemate in the US should help the global recovery, El-Erian said. Uprisings in the Middle East are “unpredictable,” he added.