Mohamed El-Erian thinks it will take a huge spark to help fix the global economy.
El-Erian, Allianz’s chief economic adviser, has been of the opinion that the world is stuck in a low-growth environment. Whether you call it secular stagnation or a new normal or some other name, there’s no denying the ongoing sluggish nature of the global economy since the financial crisis.
To break out of this deep economic funk, El-Erian argued, a coordinated move from all sides of the political spectrum in Europe is necessary.
“So my hope is for what is called a ‘Sputnik moment’ – it’s a collective natural realization that if we don’t do something now, something really bad is going to happen,” El-Erian told reporters at an Allianz roundtable.
Essentially, he believes that one event has to catalyze the European governments into action on economic growth. Fiscal stimulus has long been prescribed as a cure for the slow growth economy; El-Erian thinks it will have to take some sort of wake-up call to get done.
“It comes from the late ’50s when they us woke up to the reality, that the USSR, the Soviet Union or what Reagan later called “The Evil Empire,” had successfully launched a satellite into space. And suddenly, national security was at stake. And what you got was incredible unity on the need to catch up in the space race. It was a political catalyst that allowed us to do something different, and my hope is that we get an economic Sputnik moment.”
El-Erian is advocating a moment of clarity that would allow the disparate sides of the political and economic arguments to come together. While El-Erian did not specify what sort of event may bring about such a moment, he said Europe needed to develop a cohesive response soon before the continent’s issues grow to unmanageable proportions.
“[I hope] that we realize unless we do something about low- and noninclusive growth, then the problem will be multiplied economic, financial, political and social,” he said. “Now some people will say that well, we need a crisis for this. Or you need huge political leadership.”
Where that leadership will come from remains to be seen, but in El-Erian’s view it needs to come fast or Europe will have an even bigger issue on its hands.