The spotlight may soon be off the US again

Largely missed by the media, one of the world’s biggest sovereign lenders PIMCO dropped a bomb onto the EU/Brussels/ECB axis of complacency today.

Pacific Investment Management Company’s (Pimco) chief executive, Mohamed El-Erian, has told Der Spiegel that Greece’s only way out of its debt crisis is for Europe to reduce Greek debt from 140% of gross domestic product (GDP) to 90%….that is, cough up and pay the write-off, right now

“Debts should fall under 90% of GDP,” said El-Erian, whose company oversees more than $1.1 trillion in investments. “The people cannot withstand the current savings programme.” As he is on most matters, El-Erian is right: in fact, on the whole he’s a lot more right than his partner Bill Gross.

The problem with Greek debt is not how much there is of it, but how expensively short-term it is. And as PIMCO says, without Uncle Jean-Claude to pay off the creditors, the outcome looks like anything from economic stagnation to bloody revolution.

Despite the little show of selling gefilte fish in Tel-Aviv last week, Portugal remains very much in the Emergency Room – for precisely the same reason: a lot to pay back in a short space of time.

Portugal has to refinance €9.5bn of debt in two tranches – one each in April and June. Much will ride on the politicians and eurocrats having convinced investors and lenders they have the money to cope. There is still enormous pressure on Germany to allow for an overhaul of the eurozone’s €440bn rescue fund in exchange for tough austerity measures; indeed, financial markets are factoring in a deal on this at the EU summit in late March. But EU summits have a habit of emitting much hot air, and very little white smoke.

We are at a key moment in the euro crisis, and Portugal is (for the time being) on the frontline. We will know in a month or so whether Lisbon must accept a bail-out or not – and whether Berlin will approve it. But in the meantime, the PIMCO gauntlet on Greece is a well-placed slap of reality in the Brussels face.

Earlier last year – just prior to the UK election – Mervyn King and Alistair Darling’s press agents were fond of pointing out that most of Britain’s debt is much longer term – and therefore far less of a worry. At the time I noted that market sentiments change, and yields can rise on long as well as short-term debt.

As The Slog posted yesterday (Friday), US 30-Year yields are at an all-time high of 4.69% following the Bernanke QE confirmation and the poor payroll figures. The next two months will put Britain right in the firing line if there are not more convincing data about our soi-disant ‘recovery’.

There’s one very good reason why confidence in those data is vital to our survival as a Triple-A borrower: while Greek debt is 140% of GDP, ours is 540%.

Enjoy the Saturday night telly, and sleep well.