POLITICIANS in Europe and the US must wake up to the severe loss of market confidence in their economic leadership, the head of the World Bank said last night in Australia.
Recent events “have pushed us into a new danger zone,” Robert Zoellick (pictured) warned, arguing that substantial reforms to government spending commitments are required.
There were few real fears that the US was facing a fiscal crisis, Zoellick said, yet added: “frankly that markets are used to the US playing a key role in the economic system and leadership.”
He said efforts to cut US government spending have so far been focused on discretionary spending as opposed to the entitlement programme such as social security. “Until they make an effort on those programmes, there is going to be continued scepticism about dealing with long-term spending.”
Zoellick said the process of dealing with the sovereign debt problem and some of the competitive issues in the Eurozone have tended to be done “a day late”, leaving markets worried that authorities may not be ahead of the problem or moving in the right direction.
“That (worry) has accumulated and so we’re moving from drama to trauma for a lot of the Eurozone countries,” he said.
On a more positive note, Zoellick added: “What is different from the world of the past is now emerging markets are sources of growth and opportunity. About half of global growth is represented by the developing world.”