EFSF 'War Chest' Can Stop Euro Zone Crisis: CIO Guggenheim

As long as Greece keeps going down “this road of austerity with a very restricted monetary policy, there’s no escape mechanism for the peripheral,” Scott Minerd, CIO of the fixed income firm Guggenheim Partners, told CNBC Monday.

The Parthenon in Greece
Scott E. Barbour | Getty Images
The Parthenon in Greece

Things have “gotten worse” for Greece, Minerd said. “Greece clearly, with 160 percent of a debt to [gross domestic product], can never get out of this mess without restructuring.”

However, if the European Financial Stability Facility, which functions like a bank to provide loans to euro-zone members who have economic difficulties, "can get leverage behind it,...then this would be a big enough war chest to stop" the European debt crisis, he explained.

"The number being talked about is $3 trillion," added Minerd.

The key would be first to get the Greek debt out of the way by buying it back at a significant discount. Then allow Greece to step into the payment obligation of the EFSF in exchange for reform within their own economy, he went on to say.

"The question is can the European Union get together and have the political will to have an orderly restructuring of [Greece] debt without allowing them to default and have chaos?”, stressed Minerd.

"The policymakers in Europe, especially the Germans and the French, have long sought to have a political and economic union. And I think now that they feel they have it in their grasp they don't want to give it up."

For that reason there is only one option left, which is "to figure out a way how to get these people restructured without destroying the entire financial system of Europe," said Minerd. "The lowest cost path is to take an aggressive approach using the EFSF or some other vehicle and restructure this debt, and get it out of the way."

Stocks added to their losses in a choppy session on the first trading day of the quarter Monday, led by financials, as investors remained concerned over Greece's financial woes.

Minerd said the surprise of the fourth quarter could be that "things are not as gloomy as we think when you look at commodity prices coming down (when you look at gasoline prices coming down just 7 percent over the last week) you have a lot of foundation there for what would amount to a tax cut for the American consumer."

"We could find that growth in the fourth quarter is a lot stronger than people think," he concluded.

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