Europe Economy

Mohamed El-Erian: Watch out for 'messy' Greek deal

Greek deal return of 'gunboat diplomacy': El-Erian

World financial markets should be somewhat relieved that Greece and its creditors reached a reforms-for-bailout deal, closely-followed market watcher Mohamed El-Erian said Monday.

But the chief economic adviser at German financial giant Allianz warned that investors should be prepared for a difficult and messy implementation of the terms of the agreement.

Euro zone leaders in Brussels agreed Monday on a third rescue for Greece. The deal includes a stipulation that a $55 billion fund be set up using Greek government assets for privatization.

The two sides came together for "two negative reasons," because the alternative was worse and nobody wanted the Greece exit from the euro on their watch, said El-Erian, former co-CEO of Pimco.

It's clear that euro zone leaders don't have an orderly process for a country to leave the euro, he said, adding: "Therefore they would rather continue with something very messy and uncertain."

As for inspiring other indebted nations in the euro—like Spain, Portugal or Italy—to seek better terms from their creditors, El-Erian said the crisis in Greece should actually be a deterrent.

"Anyone looking at Greece would not openly go down that path," he said. "What's happening on the ground is absolutely awful. It's a tragedy. People are really suffering on the ground."