Eurozone Countries Moving From Drama to Trauma, Markets in Danger Zone: World Bank Chief

By: EW News Desk Team   Date: 15 August 2011

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15 August 2011

The loss of confidence in markets and leadership in key economies like the United States and Europe coupled with a fragile economic recovery have pushed markets into a new danger zone, something that policymakers have to take seriously, the chief of the World Bank said last Sunday.

 

Speaking at the Asia Society's annual dinner in Sydney, Robert Zoellick said that the global economy was going through a "multi-speed recovery".

Developing countries were now the source of growth and opportunity, Mr Zoellick said, in a report by the BBC.

In the past two weeks, global stock markets have suffered massive falls on fears about the state of leading economies.

The US had its AAA debt rating cut for the first time in its history by the rating agency Standard & Poor's, following a long and bitter row in Congress over a plan to raise the US debt ceiling to ensure the country avoided a default.

In Europe, rumours emerged that France would also have its top-notch rating downgraded, although this was widely denied, while Italy announced its second austerity plan in as many months.

Fragilities of recovery

"What's happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries. I think those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. I don't say those words lightly," Mr Zoellick said.

He said he was making the point so that policy makers would take it seriously.

On the US, he said markets were not afraid that the world's biggest economy faced an imminent problem, but that they had got used to the US "playing a key role in the economic system and leadership".

The eurozone faced more serious problems, he said, with a lot of member states "moving from drama to trauma".

But he said Australia was in a much better position than other developed countries because of structural reforms it had already undertaken.

On China, he said the appreciation of the yuan would would help reduce inflationary pressures in the country.

 


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