Political unrest threatens to tear apart the eurozone, warns Pimco
By Szu Ping Chan
Telegraph.co.uk
2 JUNE 2016
Rising populism in Europe poses a bigger threat to the global economy than the prospect of a Donald Trump presidency, according to the Pacific Investment Management Company (Pimco).
The bond giant warned that a “radical” political party taking power in the eurozone could tear the bloc apart.
Andrew Balls, chief investment officer of global fixed income, also said the risk of a fresh recession was becoming “worrying”, given that the global economy was seven years into recovery and central banks were already at risk of “policy exhaustion”.
Mr Balls said the prospect of Mr Trump’s election in November would create “a lot of uncertainty” and “a potential risk to the US outlook” that would be negative for US risk assets.
However, Mr Balls said the Republican candidate was more likely to use the “bully pulpit” of the White House as a platform for his populist agenda rather than to enact sweeping reform.
“Unlike in Europe, [Trump’s] powers would be constrained, so it’s not obvious that a Trump presidency would struggle to get beyond the gridlock we’ve seen in recent years,” said Mr Balls.
“So I would stress it’s more likely to be heightened uncertainty rather than guaranteed disaster.”
Mr Balls said the risks in Europe, which is still blighted by high unemployment, were much larger.
“Certainly in the European case we could get a highly radical government with a lot of power to implement its policy proposals, and that’s a key risk,” he said.
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