21 October, 2021

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World Bank Warns That Euro collapse Could Spark Global Crisis

By  in Athens and  / The Guardian –

The outgoing head of the World Bank, Robert Zoellick, will warn the G20 summit that Europe runs the risk of sparking a Lehman-style global crisis that will have dire consequences for developing nations.

World Bank president Robert Zoellick will tell the G20 summit that the euro crisis could hit developing nations. Photograph: Saul Loeb/AFP/Getty Images

As Greek voters go to the polls in elections that could determine the future of the eurozone, Zoellick told the Observer he was advising emerging nations to ready themselves for the consequences of events in the single-currency area.

The election of an anti-austerity government would spark the most serious crisis for the euro so far, following the apparent failure of a Spanish bank bailout last week. German chancellor Angela Merkel yesterday ruled out renegotiating Greece‘s bailout, saying the country must stick to its deals with international lenders. Unofficial polls suggest the conservative New Democracy party is ahead of the anti-austerity Syriza by four percentage points — though as much as 15% of the electorate remains undecided.

As all eyes focus on Athens, Zoellick said: “Europe may be able to muddle through but the risk is rising.” He added: “There could be a Lehmans moment if things are not properly handled.” The bankruptcy ofLehman Brothers in September 2008 proved to be the trigger for the deepest slump in the global economy since the 1930s, and Zoellick said developing countries needed to “prepare for the uncertainty coming out of the eurozone and the wider financial markets”. He added: “It will be better if they can avoid piling up short-term debts that can come due in volatile periods and look to the fundamentals of future growth – infrastructure and human capital.”

Zoellick, whose five years at the bank has coincided with the financial and economic crisis, retires at the end of the month. Fearing that Europe’s sovereign debt problems could have spillover effects, he said the bank had been increasing its lending to support Bulgaria’s banking system and acting to prevent a credit crunch in south-east Europe. Steps were also being taken to protect countries in north Africa that were vulnerable to Europe’s debt crisis and trade finance facilities were being strengthened for francophone west Africa.

“Uncertainty in markets is now starting to increase costs for developing countries,” he said. “The ripple effects are making everybody’s life harder.” Zoellick said his organisation was concentrating on helping developing countries to prepare projects that could go ahead with the right investment and to protect the most vulnerable if there was a second leg to the global downturn.

“Given the volatility in the world economy, there is a big emphasis on helping developing countries to develop social safety nets that don’t bust the budget,” he said. Countries such as Mexico and Brazil, he added, had shown they could do this using low-cost, effective targeting, information technology and the right incentives.

While the World Bank’s sister organisation, the IMF, has been more directly involved in the rescue operations for Greece, Ireland and Portugal, Zoellick said that the bank had been monitoring events in Europe carefully. Higher interest rates for countries such as Spain and Italy, which have announced big structural reform programmes, were the result both of market uncertainty and the failure of other European countries to provide “the right backing” for the governments in Madrid and Rome.

As the former US trade representative, Zoellick said he was concerned that the prolonged crisis was starting to lead to pressures for protectionism and economic nationalism. “This is not just an economic crisis but a political threat as well,” he said. “We must make sure we keep markets open and beware against creeping protectionism. We are starting to see some increase in the use of trade restrictions.”

Several European leaders urged Greeks to stick with the euro, including Spain’s prime minister Mariano Rajoy and Jean-Claude Juncker, who is Luxembourg’s prime minister and head of the group of eurozone finance ministers.

“If the radical left wins [in Greece] – which cannot be ruled out – the consequences for the currency union are unforeseeable,” Juncker told the Austrian newspaper Kurier. “I can only warn everyone against leaving the currency union. The internal cohesion of the euro zone would be in danger.”

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    The world Bank can warn all it wants but it like the IMF should be closed down! The IMF and World Bank have the primary mandate to ensure that the global economy works and have been paid enormous amounts of money to do so but have failed miserably. Time has come to deal with the core issues the rot in knowledge production coming out of the Breton Woods twins that have made the rich richer and the poor poorer systematically. They have provided the “knowledge base” and legitimacy for the transfer for public wealth into private hands for decades. The medicine they offer is worse that the disease and they bail out corrupt Bankers and banks for billions of dollars while people starve in the streets. Enough is enough. First close down these two white elephants and then lets get a truthful analayis of what can be done to ensure social justice for the poor and ordinary people.

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      Indeed the IMF and WB are like the emperor who has no cloths! Their advice (recall that the WB had delusions of grandeur and called itself the “knowledge Bank”) for curing the debt crisis in the Euro-zone and elsewhere is worse than the disease. Seems that they (Breton Woods twins) are “too big to fail” and must be propped up to give rancid advice to corrupt despots like Rajapakse.

      During the Asian financial crisis in the mid-nineties, Malaysia told the IMF to take a hike. Malaysia had top economists running economic policy unlike the Rajapakse who has only that criminal clown Cabraal and the CB. Nobel winning econonmist Joe Stiglitz has a good analysis of how IMF policies impoverish people. They collaborate with highly militarized and corrupt despots, wait for a crisis to hit and then provide awful solutions!

      By the way the IMF is against high taxes on imported BMWs and super luxury cars because they are capital and corporate friendly. Hence the GoSL is now offering duty free permits to public servants to by more cars and spend more foreign currency so that the rupee depreciates further!

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    A few months back BRICS was meeting in Delhi and were considering a different organization to support the developing countires like ours. Can that solve our crises, which are showing quick growth in our economy at present and further threat warned of even by the IMF; only last week?

  • 0
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    Just as WB spots emerging economies are being affected,how come WB,Euro CB never saw Greece or Spain piling up debt and warn against it.
    Economists are pundits after the event,rarely prior.

  • 0
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    The first bullet to further render poorer the already developing world was fired by the reckless and greedy duo the Shah of Iran and Gadaffi around 1973 when the price of a barrel of crude was ruling around $3.
    This was sent to $13.50 at that time and gradually allowed to rise on the comical argument by OPEC “the current prices of Crude is not sufficiently ecnomical to them” Many countries in Africa, Asia, S. America and the Carribbean underwent severe political turmoil as a result – that included poor Sri Lanka as well. Shah died with no country willing to provide a home for him and Gaddaffi was slaughtered by his own mobs. The big oil companies did not fail to take advantage of the situation. What was sleepy fishing villages like Dubai, Muscat, Qatar became gleaming steel-and-glass ultra-modern cities.
    Indonesia, the Malay States in Asia; Nigeria in Africa; Venezuela,
    Colombia in South America also benefited by the bonanza while the
    economy of the world was sliding. Outrageously, even at the original
    $3/bbl the producers were becoming billionaires with one family in
    Saudi Arabia alone investing US$900 billion in the US financial market
    (Michael Moore in 2001) The turmoil felt currently in the financial markets and the poor becoming poorer in the developing countries have
    their roots herein.

    BRICS, lead by China and Russia, will continue to insist on an alternative to the world currency system from the dominance of the US$ – and the Americans will resist this. The entire global financial structure has to be re-worked again. Income and wage-structres worldwide may eventually have to find harmony in a system that might have to eliminate the now existing disparities.

    Senguttuvan

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