El-Erian: Emerging Economies to Resist US, European "Second Bests"
PIMCO's CEO and co-CIO Mohamed El-Erian has sounded bells on what he believes are fundamental compromises that could thwart progress on the continued world crisis. In an article appearing on Project-Syndicate.org, Dr. El-Erian refers to two areas where the United States and Europe may be colluding to "second best" solutions to two key issues: the European Debt Crisis and the selection of the World Bank's next president.
Dr. El-Erian reacted on claims that Eurozone's worst is over and that other countries should now do their part - coming from European high officials such as ECB's Draghi and President Sarkozy and Finance Minister Baroin of France - are predictable given the period of relative tranquility in Europe that contrast the prolonged turmoil preceding it. However, despite applauding courageous reforms instituted by technocratic European leaders and the bolstering of the Union's internal firewalls, El-Erian notes that "this tranquility has been more borrowed than earned."
While LTROs deployed have provided breathing room for banks and lower costs for government financing in Europe, they do not do much - nor were they designed to solve - what he considered Europe's twin growth: too little growth and too much debt. In trying to shift responsibility to other countries - namely the International Monetary Fund, for whom Europe is trying to secure more resources from emerging economies - the Eurozone risked settling for a second best solution to its crisis.
El-Erian says that this is a shortcut the United States should have been able to object, but aren't - in the interest of gaining European support for another second-best solution it is putting forward: the American candidacy of Jim Yong Kim for the head the World Bank. The historically American-held presidency of the World Bank is being sought, for the first time in its history, by two Non-American nominees. One of them, Nigeria's Ngozi Okonjo-Iweala is far superior a selection according to El-Erian, who notes that "when judged by the Bank's own criteria for the job, the highly respected Okonjo-Iweala dominates the other two candidates."
American insistence - and European silence - in pushing the less-qualified candidature comes from "their historical attachment to a harmful nationality-based entitlement," which El-Erian says stops them from opting for the best. This, he says, imposes responsibility - as well as a unique opportunity - for emerging economies to act in opposition to these second bests.
El-Erian sees emerging economies postponing the bolstering of the IMF with additional resources, uniting their voting power behind a single non-American candidate (Okonjo-Iweala), as well as applying pressure through alternative institutions, such as the "development bank for the South: emerging from last week's BRIC meeting in India.
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