World Bank President Robert Zoellick indicated that risks to the global economy are intensifying, with the euro region’s outlook dependent on European leaders making the right decisions.
“We are moving into a dangerous period,” Zoellick said in an interview with Bloomberg TV in Singapore yesterday.
While the US is likely to avoid a return to recession, escaping with slow growth, the eurozone is facing a “particularly sensitive time,” he said.
Zoellick’s comments add pressure to European officials who have yet to contain a sovereign debt crisis that threatens to engulf Italy, whose government bonds in euros have tumbled for a record 11 straight days. Finland has sown division among policy makers by seeking collateral for loans to Greece, the first of the three euro-region nations to receive bailouts so far.
Asian stocks and US futures fell and the euro slid for a fifth day against the Swiss franc on concern that Europe’s debt crisis is worsening. The MSCI Asia Pacific Index dropped 2.7 percent at close in Tokyo, with financial shares following a slump in bank stocks in Europe as the cost of bank default insurance surged to records.
The US and European economies are stalling and weaker global growth will have an impact on Asia, Singaporean Minister of Finance Tharman Shanmugaratnam said at a conference yesterday. Growth in the US and Europe may be about 1 percent, he said later.
However, Zoellick played down the chance of a “double-dip” global recession.
Still, “we are now seeing a particularly sensitive time in the euro zone,” the World Bank chief said in the interview. “A number of issues are converging.”
“I believe the US will have slow growth, I don’t believe it will move to a double dip, but these things are very hard to predict because if you have events trigger uncertainty in Europe, that will flow back to the US,” Zoellick said.
The performance of the eurozone “depends on the political decisions moving forward,” he said.
The euro will survive in the next five years, while the question over membership of the common currency is one that Europeans have to answer, he said.
“Sometimes people hope that you can muddle through by providing financing and liquidity, in the case of Europe, from the European Financial Stability Facility or the European Central Bank,” Zoellick said.
“They now recognize that’s not going to happen and instead what you see is with some of the weaker economies, the austerity policies are pushing them into slower and slower growth and so this could be a downward spiral,” he said.
Ireland, Latvia and the Baltic countries appear to be “on a better path,” he said.
Spain has “taken a lot of important decisions” and Italy should be in a “sound” situation, he added.
Meanwhile, EU Commission President Jose Manuel Barroso yesterday defended the political will of EU leaders to resolve the eurozone debt crisis, despite concerns that they seem unable to halt a slide back into recession and avoid a fresh banking crisis.
“I believe we will solve it,” Barroso said in a speech at the Australian National University in Canberra.
“A lot has been done and we are in the process of completing a very complex architecture. I can tell you very honestly I believe there is a strong determination of the leaders of the eurozone and the member states to support the financial stability of the eurozone and the euro,” he added.
The EU, with the backing of the IMF, have set up a 440 billion euro (US$621 billion) stability fund to help weaker member countries, fight financial market contagion and prevent a crisis of confidence among banks.
Barroso said fiscal consolidation was Europe’s most serious challenge.
“The euro remains an extremely important, credible, stable currency,” he said. “European leaders, the IMF and countries providing most of the support will do whatever it takes, whatever is necessary, to keep financial stability in the eurozone.”
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