Economic leadership at crux of turmoil: World Bank
World Bank chief Robert Zoellick said today that investors had lost confidence in the economic leadership of several key countries, warning global markets were in a "new danger zone" as a result.
Sydney: World Bank chief Robert Zoellick said today that investors had lost confidence in the economic leadership of several key countries, warning global markets were in a "new danger zone" as a result.
Zoellick said a convergence of events in the United States and Europe had rattled investors in countries already struggling to cap sovereign debt issues and unemployment.
"And what we've seen is that confidence is a fragile element of how the market economy works," the World Bank Group president told an Asia Society dinner in Sydney.
"And I think that those events combined with some of the other fragilities... have pushed us into a new danger zone. And I don't say those words lightly."
Zoellick said he was making the point, not so people would run out of the room to call their brokers, but so that policy makers would take it seriously.
He said the United States had contributed to the drop in confidence in the markets following the bitter debate in Congress to ensure that the country did not end up with a disastrous debt default.
"It's not that the United States faces an imminent problem," he said.
"Frankly, markets are used to the United States playing a leading role in the economic system and leadership and so when they saw the 'Sturm und Drang' in Congress and with the executive, it made them uncertain about, well does the United States really know where it's going? And is it going to get there?"
The problems were more serious in the eurozone, he said, where the processes for dealing with sovereign debt and some competitiveness shortfalls had lagged.
"We're kind of moving from drama to trauma for a lot of the Eurozone countries," he said.
Financial markets have suffered dizzying swings in recent days and weeks on mounting concern that the eurozone debt crisis and weak US economy could help see the world fall back into recession.
While he refused to pinpoint which other countries could suffer due to the market volatility, he noted that the developing world remained a source of growth.