Convergence of US and EU economies will decide if a major global recession is coming, Allianz Chief Economic Adviser Mohamed El Erian tells BBC World Service’s Hardtalk. For Europe there is a 50% chance for a recession next year, but not for the US. The issue here is the divergence of the US economy being on a high, while growth in Europe is slowing down thanks to structural impairment. How the world economy will fare depends on the convergence of these two factors. Will the US be dragged down by the rest of the world, or will Europe get its act together and catch up? El Erian’s comments on the global economy come as US, European and Asian equities took a major hit this week.

The US Federal Reserve should take responsibility for the impact of monetary tightening on emerging markets, El Erian appears to suggest, using the metaphor that you cannot have a good house in a bad neighborhood. It was the quantitative easing that raised liquidity and drove investors unfamiliar with some EM countries to buy their debt, take on their risks and deploy capital inefficiently. As the Fed now moves to raise interest rates, these investors are pulling out and EMs suffer for it.

El Erian sees logic in the Trump Administration’s trade war, saying that it tumbled on to a ‘Reagan moment’: “If the US is willing to incur the risk of a trade war, it will win every single time.” The aggressive approach is driving America’s trade partners to try to de-escalate trade tensions as they realize they cannot win a trade war with the US.

You can catch the full interview here (listen, runtime: 23:00), or catch his recent appearance on Bloomberg, where he says he doesn’t expect a US recession in the next 18-24 months (watch, runtime 3:30).