Mohamed El-Erian, CEO of PIMCO, predicted on Thursday that the European Central Bank (ECB) will cut interest rates to deal with the increasing odds—now 50%—that the euro zone will plunge into a recession. At the same time he added that the U.S. stood a 33%–50% chance of another contraction.
In a Bloomberg report, El-Erian was quoted saying, "I would expect the ECB to change course. They're going to be pushed to do so." And in fact on Friday economist members of the shadow council of the ECB were doing just that, calling for a reduction in the 1.5% interest rate back to where it was at the beginning of the year: 1%.
El-Erian compared the European crisis to the subprime meltdown experienced in the U.S., saying that problems in a small sector of the economy—in the case of the euro zone, Greece—could spread to envelop the entire region. "The dynamics are very similar to what we saw here," he said of the situation, adding that there was "definitely" a risk Europe could pull the rest of the world's economy down with it.
