World Bank President Robert Zoellick said there is no “silver bullet” to resolve Europe’s sovereign-debt crisis and every country has a common interest in seeing the region succeed as they debate chipping in more cash to bailout funds.
“The real big issue going forward here will be the success of Spain and Italy,” he said in a Bloomberg television interview in Singapore. “The good news is we’ve got some very reformist governments in both countries. They are not only undertaking fiscal discipline but they have started undertaking structural reforms.”
Officials from the Group of 20 and central bank governors met over the weekend in Mexico City, where U.S., Chinese and Japanese officials said they would press euro-area countries to do more to merit outside help to end the region’s sovereign debt crisis. The International Monetary Fund has warned concerns about debt sustainability could drag the world into another recession.
The focus on Spain and Italy comes after euro-area governments sanctioned a 130 billion euro ($174.8 billion) aid package for Greece this week to avert a March bankruptcy. While China, Japan, Brazil and Mexico said they are willing to help, Europe “must make more efforts to create a bigger firewall,” according to Japan’s Finance Minister Jun Azumi.
“There’s been rolling discussions what other resources Europe should put up” apart from the European Stability Mechanism, Zoellick said. “That’s understandable because it’s a form of insurance policy. It’s understandable that other countries want to see Europe put up their own resources first but I think everybody understands there is common interest in having Europe succeed.”
European leaders will meet in Brussels March 1-2 to review the mechanics of the 500 billion euro permanent rescue fund, known as the European Stability Mechanism. The fund, which is to be implemented in July, one year earlier than originally planned, was set up to aid European Union member states that need help meeting debt payments.
Europe’s debt problem may undermine banks’ capital and one of the reasons why ending Europe’s problem is difficult is “because there is not a silver bullet solution,” Zoellick said.
Zoellick said he is cautiously optimistic on global economic growth, as the U.S. economic recovery has momentum and is moving in the right direction. China, the world’s second-largest economy, is likely to have a “soft landing,” he said.
The European Commission, the EU’s executive body, said it expects the region’s economy to shrink this year. A euro-area composite index based on a survey of purchasing managers in services and manufacturing dropped to 49.7 from 50.4 in January, London-based Markit Economics said on Feb. 22. In contrast, U.S. manufacturing grew in January at the fastest pace in seven months.
Zoellick said financial stability in Europe and energy prices caused by “political insecurity” in the Persian Gulf are the big threat to the global economy. Oil prices have climbed 11 percent this year to $109.77 per barrel.
Zoellick, who was nominated by President George W. Bush in 2007, said this month he will leave the institution when his five-year term ends June 30.
“I had good opportunities in my life and I hope I will find some more,” he said. “I have been involved in public service in different respects, so we will have to see what happens.”
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