Zoellick: Governments should deal with global debt woes

CANBERRA Tue Aug 16, 2011 6:59am EDT

World Bank Chief Robert Zoellick pauses while speaking at the Asia Society's annual dinner in Sydney August 14, 2011. REUTERS/Tim Wimborne

World Bank Chief Robert Zoellick pauses while speaking at the Asia Society's annual dinner in Sydney August 14, 2011.

Credit: Reuters/Tim Wimborne

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CANBERRA (Reuters) - The World Bank called for national governments to seek long-term debt curbs on Tuesday to solve the current sovereign debt crises in Europe and the United States, but said it was too early for special action by the Group of 20 nations.

World Bank President Robert Zoellick also said it was time to push a free trade agenda, warning against rising protectionism as nations seek to solve their debt crisis.

"This is really at a stage where you still have sovereign governments having to make decisions in Europe," Zoellick told reporters in the Australian capital Canberra on Tuesday.

"It really is going to be the responsibility of each of those sovereign entities to make the calls on how they are going to face not only the short-term challenges, often assisted by their central banks, but also go to the medium and long term," he said.

Euro zone policymakers have been battling to contain a debt crisis that threatens to enter a dangerous new phase by engulfing larger nations on the region's periphery, with the European Central Bank stepping in last week to buy Italian and Spanish bonds in a bid to calm nervous markets.

But the idea of so-called "Eurobonds" or joint euro zone bonds has been fiercely opposed by Berlin, which is fearful such a step would push up German borrowing costs and reduce incentives for weaker euro zone members like Greece to reform their economies.

FIN MINISTERS CALL FOR POLITICAL RESOLVE

Zoellick's comments came as finance ministers of five nations - Canada, Britain, South Africa, Singapore and Australia - wrote a joint article to urge global action to restore confidence and for governments to do more to restore finances.

The ministers also said more political resolve was needed to strengthen bank balance sheets.

"Credible fiscal plans and stronger banks must be matched by more progress on global rebalancing," the ministers wrote in an article published in the Financial Times.

"In any coordinated global effort, all countries must make their contribution. Surplus countries and leading emerging economies have to keep up the momentum of structural reforms that support domestic consumption and global demand. A slowdown in these reforms at a time of decelerating global growth risks adding to the spiral of global decline."

Members of the G7 group of leading industrial powers on August 7 promised to take whatever action was needed to steady global financial markets, including joint action in foreign exchange markets if needed.

Finance ministers and central bankers from the G20 group of nations have also promised to take all steps necessary, in a coordinated way, to support financial stability and foster economic growth.

After meetings with Australian Treasurer Wayne Swan and Prime Minister Julia Gillard in Canberra, Zoellick said the loss of market confidence in economic leadership the United States and Europe, coupled with a fragile economic recovery, had pushed markets into a new danger zone.

"What markets are looking to is a long-term action plan that goes beyond discretionary spending," he said of the United States. "So far, we've been able to kind of hold off the dogs of protectionism, but as you get slowdown, these risks can build."

European banks were rocked last week by concern about a squeeze for short-term funding, with tougher and more costly financing and a retreat by U.S. money market funds prompting lenders to turn to the ECB for more cash. France's banks were hit particularly hard.

Zoellick said the appreciation of China's yuan currency would be a positive in helping restore global economic stability and tackling China's inflation

"That could help deal with some of the inflation rate and is also a contributor, I think, to some of the stability in the international system," Zoellick said.

(Editing by Michael Perry and Ramya Venugopal)

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Comments (3)
Talleyrand wrote:
Zoellick is an old Bushista, a Europe-hater, a shill for big business… This just to remind readers that he is not necessarily a big light in terms of finance, but rather another ideologue.

You’re welcome.

Aug 16, 2011 4:32am EDT  --  Report as abuse
awabnavi wrote:
Not to worry. The Europeans will settle their debts after they have gained back their old colonies. They will take their resources to pay back their debts. They are already well ont heir way to regaining their colonies – Iraq, Afghanistan, Libya, etc.

Aug 16, 2011 8:37am EDT  --  Report as abuse
bobw111 wrote:
Tallyerand is Right… Everyone knows governments can spend all the money they want with out any consequences.

All they have to do is just print some more because they have printing presses and lots of paper.

It worked perfectly for the Weimar Republic almost 100 years ago, so it will obviously work for all the European countries now.

True there were some minor problems back then that might have been contributing factors leading up to World War II, but as the left likes to continually point out, those were all Bush’s fault also…

Aug 16, 2011 3:32pm EDT  --  Report as abuse
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