Milken Institute Associates Economic Briefing

Description

The European Union and the International Monetary Fund made a dramatic move in mid-May: They made nearly a trillion dollars in loans available to EU nations in danger of default, signaling to the world's markets that the EU is committed to such troubled countries as Greece, Portugal and Spain.

Will the rescue effort save the PIIGS and, by extension, the Eurozone? In a week when jitters sent financial markets down sharply, Komal Sri-Kumar, group managing director and chief global strategist for The TCW Group and a senior fellow at the Milken Institute, provided a private economic briefing to Milken Institute Associates, outlining the scope of the crisis and its potential for contagion.

An expert in country risk analysis, Sri-Kumar drew parallels between the evolving situation in the Eurozone and the Latin American debt crisis of the 1980s. While Greece represents only 2.5 percent of the Eurozone's GDP, its struggles have much broader implications. The markets are already beginning to test other countries where they see similarities.

It is impossible for the United States to merely watch this crisis unfold from the sidelines, according to Sri-Kumar. Both European and U.S. banks have large exposures to questionable sovereign debts, jeopardizing the still-fragile recovery. He urged a greater realization that in a tightly interconnected global economy, government officials cannot work in isolation; more coordinated international responses are required.

Sri-Kumar detailed the considerable practical difficulties of implementing the hastily unveiled bailout plan, including the political backlash in Germany. Discussion ranged from the structural origins of the crisis to prospects for rising inflation and even an eventual restructuring of the Eurozone.

This event was open only to members of the Milken Institute Associates. To join, please contact Mindy Silverstein, director of Milken Institute Associates, at (310) 570-4634 or msilverstein@milkeninstitute.org.