World Bank head: U.S. playing with fire on debt limit

WASHINGTON Fri Jul 29, 2011 3:44pm EDT

World Bank President Robert Zoellick speaks at a news conference during the spring International Monetary Fund (IMF)-World Bank meetings in Washington April 16, 2011. REUTERS/Yuri Gripas

World Bank President Robert Zoellick speaks at a news conference during the spring International Monetary Fund (IMF)-World Bank meetings in Washington April 16, 2011.

Credit: Reuters/Yuri Gripas

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WASHINGTON (Reuters) - The United States is courting calamity with the continuing stalemate in Congress over raising the country's debt limit, the World Bank's chief warned on Friday.

"Whatever the logic about the tactics, it's a very dangerous environment," Robert Zoellick told a meeting of the Society for International Development, adding that people were "playing with fire."

"To be blunt, to have a debt default in the United States would not only be a financial calamity but it should be an embarrassment for every American" he said.

Unless the $14.3 trillion debt ceiling is raised by Tuesday, the United States will lose its ability to borrow and start to run out of cash to pay its bills.

Efforts to avoid an unprecedented debt default suffered a new blow on Thursday when some fiscally hard-line Republicans blocked a budget deficit plan proposed by their own congressional leaders.

On Friday, President Barack Obama said he was ready to work with top Democrats and Republicans through the weekend to get a debt ceiling accord.

Zoellick, who served in both Bush administrations, said the political standoff in Washington came at a dangerous time in the world economy, when the euro zone faced serious fiscal difficulties and Japan was struggling with low growth and damage from an earthquake and tsunami.

"So you have an environment that's already fragile and uncertain ... and in an environment where the tools people used in 2008 of spending policies and monetary policy have basically run their course," he added.

With a triple-A credit rating, the World Bank raises most of its funds for credit-worthy middle income on international capital markets and most of its borrowing is in U.S. dollars.

Zoellick said the World Bank was a "very secure and sound" financial position, but like other financial institutions it was making contingency plans in case of a U.S. default or credit downgrade.

He noted later that his remarks were aimed at reminding lawmakers that their actions had repercussions beyond the United States.

"Every financial institution in the world has to try to think through "what if's," Zoellick added.

(Editing by Chizu Nomiyama)

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