When Western sovereign risk is in play

M. A. El-Erian

Financial Stability Review, 2012, issue 16, 29-36

Abstract: Sovereign risk was a big macro theme in 2011, and understandably so. This theme will not abate in 2012. Indeed, this year will likely feature many additional sovereign risk developments that will impact in a consequential manner the functioning of the global economy and financial markets. In the process, they will continue to fuel uncertainty and volatility, to alter the behaviour of companies and individuals, to challenge the effectiveness of government policies, and to impact market correlations and stability. Both the public and private sector need to understand better the dynamics of Western sovereign risk and, importantly, react responsively and in a more timely, comprehensive and decisive manner. They need to pivot from a reactionary mode to a pre-emptive one. And they need to do so in a coordinated and sustained fashion otherwise they will all find it much harder to restore growth, jobs and fi nancial stability.

Date: 2012
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