Only the ECB Can Save Europe: Pimco's Kashkari
Only the European Central Bank "has the balance sheet big enough to deal with this crisis" in Europe, Neel Kashkari, Pimco's head of equities, told CNBC Monday.
"If it's not the ECB, who's it going to be?" he asked. The central bank is "losing sight of the fact that they’re causing real damage to the European economy and to the global economy, and the longer they wait, the more damage is done, the more expensive this crisis becomes."
He also fears Europe's sovereign debt crisis could spread to the U.S.
"I hope what happens in Europe doesn’t undo all of the very painful choices we had to make in America to bail out our financial system to stabilize the economy," said Kashkari, referring to the Troubled Asset Relief Program he helped run with then-Treasury Secretary Henry Paulson. "I certainly hope not. It’s possible, though."
Kashkari was disappointed European Union leaders meetinglast week came up with only a "half measure."
"I was looking forward to something bold to give the ECB cover so they could go in massively to break the vicious cycle" of countries taking on too much debt, markets losing confidence, borrowing costs rising, and the debt becoming harder to service, which diminishes confidence further, he said.
"Then you need the [European] economies to grow so they actually can support the debt that they have taken on," Kashkari said, noting that had the ECB decided to buy bonds from troubled countries a year ago, the contagion wouldn't have spread from Greece to Italy and Spain and now possibly to France and even Germany.
He said the ECB must "create a bulletproof firewall" to protect Italy and Spain from defaulting, while letting weaker nations such as Greece default on their debts and possibly leave the euro zone.
"Until we see the ECB go all in and say they’re effectively going to call a massive quantitative easing, funding the governments to bring down the borrowing cost of Spain and Italy to create that firewall, I don’t think we’ll see a resolution in this crisis," Kashkari warned.