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Tuesday, October 28, 2014 12:51 PM

El-Erian: "Europe Is One or Two Rounds of Sanctions From Recession"; El-Erian Far Too Optimistic

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In a speech on BRICs at the Peterson International Institute of Economics former PIMCO co-head El-Erian made the claim Europe Is One or Two Rounds of Sanctions From Recession.

The West, and Europe in particular, is one or two rounds of sanctions and counter-sanctions away from entering into a new recession, chairman of President Barack Obama’s Global Development Council Mohamed El-Erian stated Monday.

“We are one or two rounds of sanctions and counter-sanctions away from the European politics over the Ukraine tipping Europe into a recession,” El-Erian said in a speech on the BRICS economies at the Peterson International Institute of Economics.

He noted that the impact of level three sectoral sanctions against Russia is “taking the West into a recession through sanctions to the energy sector.”

Arguing against the notion that Western economies are managing to keep pace after the crisis and despite the sanctions against Russia, El-Erian stated, “It may be chugging along in the United States, but Europe is looking at flat growth.”

According to Obama’s global development adviser, Ukraine continues to be a problem. El-Erian concluded, “The current state of play in Ukraine is lose, lose, lose” for Ukraine, Russia, and the West.
El-Erian Far Too Optimistic

It is not going to take another round or two of sanctions to tip Europe into recession.

France, Italy, and Spain are already there by any realistic set of measures, and Germany is in serious decline.

Unless one uses the strict definition of two consecutive quarters of declining growth, Europe is arguably in recession right now. Greece, Spain, and Italy are actually in economic depressions.

El-Erian is far behind the curve, especially if he thought he was making a dramatic statement.

But yes, sanctions are inane and they will make matters worse. And no, the US will not decouple from the global economy.

Mike "Mish" Shedlock

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