What Impact Can 'Graccident' Have On The Markets? Mohamed El-Erian Explains

Greece is running out of cash at a much higher rate than previously thought and yet there is no signs of a deal with its international creditors to resolve liquidity issues concerning the country.

Mohamed El-Erian, Allianz chief economic advisor, was on CNBC Monday to discuss the possibility of a "Graccident" i.e. the possibility of Greece committing an economic accident and the impact that can have on the markets.

Contained And Isolated

“On the one hand a precarious situation in Greece is getting worse and the probability of an accident in which governments both in Greece and in Europe lose control is high,” El-Erian said. “On the other hand, the markets are rightly and understandably focussed on the amount of cash coming in.”

He continued,“The authorized buybacks in April at $141 billion were the highest ever, dividends are going up. We are seeing central banks, China, ECB that going to become more dovish and M&A activity is picking up. So, I think the markets are focussed on the amount of cash coming in and they believe that Greece is going to be contained and isolated.”

Won’t Impact U.S. Equities

El-Erian was asked if the cash coming in the markets will help ease the impact of a Grexit (Greece exiting the European Union) if that eventually happens. He replied, “So depends on which market you look at, on the U.S. equity market, yes.”
“European equity markets, a little bit more vulnerable. European FX to Euro, more vulnerable. So, it really depends which markets you look at. I think the catch is its impacting mainly the U.S. markets right now,” El-Erian said.