Eurozone must have an emergency plan, says World Bank

Date: Friday 01 Jun 2012

World Bank President Robert Zoellick has warned European leaders that they better be prepared for an emergency situation and pushed for getting capital to the banks now.

In an opinion piece published on the World Bank’s website, Zoellick said that the “summer of 2012 offers an eerie echo of 2008” and European sovereign debt has replaced mortgages as the risky asset.

“Eurozone leaders (should) take precautions, such as getting [European Stability Mechanism (ESM)] capital into banks now and agreeing on a medium-term funding assurance for countries such as Spain. This assurance could come from the ESM or partial deployment of Eurozone bonds in ways that maintain market discipline on state financing,” Zoellick writes.

The World Bank head insists that this idea is not at odds with Germany’s desire to force other Eurozone countries to be fiscally responsible, but notes that Berlin needs to move beyond austerity measures if it wishes to secure the future of the euro.

“Germany will not achieve its strategic aims of a more integrated and fiscally sound Eurozone unless it supports reforming states and prepares for contagion,” he says.

JM

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