Europe risks 'Lehmans moment': World Bank chief
June 19, 2012, 12:31 am TWN
LONDON -- Outgoing World Bank President Robert Zoellick warned that Europe was facing a "Lehmans moment" and the collapse of the euro currency could trigger a global crisis, in an interview out Sunday.
Zoellick will warn the G-20 summit that Europe risks sparking a financial meltdown that would have desperate consequences for developing countries, he told British newspaper The Observer.
"Europe may be able to muddle through but the risk is rising," the 58-year-old American said.
"There could be a Lehmans moment if things are not properly handled."
The 2008 collapse of U.S. financial services firm Lehman Brothers — one of Wall Street's most prestigious companies — after its risky bets on the U.S. housing market soured, sparked global financial panic.
Zoellick said developing nations needed to "prepare for the uncertainty coming out of the eurozone and the wider financial markets.
"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, who steps down at the end of June after five years in charge, said the World Bank was taking action to prevent a credit crunch in Southeast Europe and to protect north African states that were exposed to Europe's debt crisis.
He said the Washington-based institution was focusing on helping emerging economies to protect the most vulnerable if another global financial meltdown occurred.
"Uncertainty in markets is now starting to increase costs for developing countries," he said.
"The ripple effects are making everybody's life harder.
"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."
Zoellick said Brazil and Mexico had shown the way forward using effective, low-cost targeting, the right mix of incentives plus information technology.
The Group of 20 (G-20) summit of world leaders is being held in Mexico on Monday and Tuesday.
He said the higher interest rates being paid by Spain and Italy was down to the failure of fellow European countries to give the "right backing."
Zoellick said he was worried that the lengthy crisis was beginning to lead to demands for 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."