King warns over protectionism

City A.M. Reporter
The world is at risk of renewed protectionism or financial crisis if policymakers do not agree to currency and other reform, Bank of England Governor Mervyn King said.

"Improved financial regulation will help to intermediate the flows associated with global imbalances. But the global economy will remain vulnerable to the risks associated with imbalances if they are not tackled at source," King said, according to an abstract of a speech he is to deliver at a Bank of France event.

King reiterated long-standing concerns that rebalancing of the global economy was needed.

"Two principles should underpin the way ahead. First, discussions should focus on the underlying disagreement about the right speed of adjustment to the real pattern of spending and hence the reduction in these imbalances. This discussion should be informed by countries' ability to follow that path in a sustainable way.

"Second, many policies, in addition to changes in exchange rate, will be needed to reduce imbalances. If agreement is not reached on these two principles, at best there will be a weak world recovery; at worst the seeds of a next financial crisis will be sown."

"Global imbalances helped to fuel the financial crisis and today they threaten the sustainability of the recovery in global demand," he continued.