Aid to Ireland just gains time, investor says

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Financial aid provided to Ireland has "gained time" for Dublin but does not resolve its problems, the head of a major investment fund commented Tuesday in a German newspaper.

"The European Union and International Monetary Fund decision shifts the problem, (but) it does not resolve the country's problems," Pimco head Mohamed El-Erian said in the business daily Handelsblatt.

In addition, "this solution increases further Ireland's already massive pile of debts," he said.

The investor also underscored the consequences of uncertainty over the extent to which holders of Irish debt might suffer losses in the future.

"The longer the uncertainty over how investors will participate in losses lasts, the greater the probability that they withdraw from the market" for government bonds, El-Erian estimated.

That would keep the cost of borrowing high for Dublin.

With respect to fears that the Irish debt crisis could spread, he said: "My concern is that indecisive management of problems in Greece and Ireland might lead investors to sell sovereign bonds issued by peripheral (eurozone) states as a preventive measure."

"That would increase refinancing costs and problems in those countries."

Pimco, a subsidiary of the German insurance group Allianz, had more than 1.2 trillion euros (1.57 trillion dollars) in assets under management on September 30.

© 2010 AFP

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