El-Erian: Greece 'accident' 55% to 60% probability
There's an ever-increasing probability of a financial "accident" involving debt-strapped Greece , Mohamed El-Erian said Tuesday.
El-Erian, chief economic adviser at Allianz, pegged the chances of an accident-referring to Greek and European officials losing the ability to control Greece's future-at 55 percent to 60 percent, which he said was higher than what he had predicted just a few weeks ago.
Greece's leftist government has been locked in negotiations with bailout creditors over economic reforms in exchange for a rescue loan, which the government says it needs to make a debt payment to the International Monetary Fund on June 5.
"I don't think we can muddle through forever on Greece," El-Erian said on CNBC's " Squawk Box ." (Tweet This)
"Deposit outflows continue," he warned.
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Greek Finance Minister Yanis Varoufakis said he's thinking about imposing a charge on cash withdrawals from bank ATMs and on over-the-counter transactions to encourage electronic banking and to fight widespread tax evasion.
"The economy in Greece is back in recession," El-Erian said. "Capital controls are likely. The government is likely to issue an IOU in order to meet its payments."
El-Erian compared the situation in Greece to the 2001 financial crisis in Argentina. "It's very difficult to control things on the ground. I wouldn't underestimate the probability of a 'Graccident.'"
But on the positive side, the impact of a Greek accident would not sink the euro zone, El-Erian said. "This is not 2010. This is not 2012. The euro zone has done a lot to contain the risk of contagion. It doesn't mean you won't get some."
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He said the immediate impact would be felt in European stocks and a further weakening of the euro currency. "There will be some spillover to the U.S., but the main impact will be in Europe."
If Greece does go under, El-Erian said he would expect a strong response from the European Central Bank "to loosen even more monetary policy and to try to protect the peripheral economies."
-The Associated Press contributed to this report.
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