World Bank chief warns of ‘more dangerous’ times

World Bank chief Robert Zoellick on Saturday warned of a “new and more dangerous” time in the global economy, as Europe struggles to resolve its debt crisis.

Zoellick said the eurozone’s sovereign debt issues were more troubling than the “medium and long-term” problems which saw the United States downgraded by Standard and Poor’s last week, sending global markets into panic.

“We are in the early moments of a new and different storm, it’s not the same as 2008,” said Zoellick, referring to the global financial crisis.

“In the past couple of weeks the world has moved from a troubled multi-speed recovery — with emerging markets and a few economies like Australia having good growth and developed markets struggling — to a new and more dangerous phase,” he said in an interview with the Weekend Australian newspaper.

People were in less debt than during the credit crunch but Zoellick said there was less room to manoeuvre this time round.

“Most developed countries have used up their fiscal space and monetary policy is about as loose as it can be,” he said.

Zoellick said the eurozone’s structure “could turn out to be the most important” challenge currently facing the world economy, with some hope for Spain and Italy but debt-crippled Greece and Portugal unable to devalue.

European Union action taken to date falls short of what is needed, the World Bank chief said.

“The lesson of 2008 is that the later you act, the more you have to do,” said Zoellick.

Markets swung wildly this week on rumours of a French credit downgrade over the debt crisis, which started in Greece and is now fuelled by fears Spain or Italy might default, sparking a break-up of the 17-nation currency.

Investors are now questioning whether France and Germany, the eurozone’s two largest economies, can continue to underwrite other states’ debts without themselves losing their top credit ratings.

Under pressure to calm jittery markets, European nations are pushing through measures agreed in Brussels on July 21 to rescue Greece and the euro currency.

However the speaker of Germany’s parliament, Norbert Lammert, warned German Chancellor Angela Merkel Saturday against rushing measures through the Bundestag, saying that their complexity demanded more time.

Merkel is also facing opposition on the measures to extend the eurozone’s crisis fund from within her own governing coalition.

Lammert also expressed concern that European leaders had failed to agree on mandatory sanctions against countries that mismanage their finances.

In Italy meanwhile, the cabinet approved a 45.5-billion-euro ($64.8-billion) austerity budget Friday that would see high earners taxed more and substantial cuts to local government.

Finance Minister Giulio Tremonti laid the blame for Italy’s predicament firmly on the lack of eurobonds.

“If we had had eurobonds, we would not be where we are today,” he told a press conference Saturday.

The European Commission will publish a report later this year on the possibility of issuing eurobonds — bonds issued and traded outside the country whose currency they are denominated in — guaranteed by eurozone states.

In Asia, a continent of developing economies led by China to which power, influence and weight was shifting “very fast by historical standards”, according to Zoellick, economic ministers nevertheless remain cautious.

On Saturday ministers predicted a slowdown in regional growth amid the European debt crisis and planned spending cuts in the United States.

Meeting in Indonesia, they predicted that 2010’s 7.5 percent collective growth from the economies of the 10-state Association of Southeast Asian Nations could slip to below six percent this year. –AFP