|World Bank President Robert Zoellick (worldbank Flickr)|
"The global economy has entered a new danger zone with little running room as European countries resist difficult truths about the common responsibilities of a common currency. Japan has resisted structural economic and social reforms that could retool its sputtering economic model. The United States is facing record peacetime deficits, with no agreed approach in sight for cutting the drivers of debt. The lesson of 2008 and earlier crises is that the later you act, the more you have to do, and the more painful it becomes. It is not responsible for the Eurozone to pledge fealty to a monetary union without facing up to either a fiscal union that would make monetary union workable or accepting the consequences for uncompetitive, debt-burdened members. It is not responsible for the United States to falter in facing fundamental issues such as unsustainable growth in entitlement spending, the need for a pro-growth tax system, and a stalled trade policy. Unless Europe, Japan, and the United States can also face up to responsibilities they will drag down not only themselves but the global economy." [continue reading]
In different words, on CNBC's Kudlow & Company, Zoellick said:
"Up to this point, Europe has been trying to solve some fundamental problems, including solvency problems, with liquidity, and that buys time [....]. But at some point, and I think that point is now, they are going to have to make fundamental decisions about the problems of sovereign debt, where some countries are in serious troubles, the effect of that on banks, because when the sovereign debt is bad it means the banks are at risk, and then third, for some countries like Greece, competitiveness. And those are issues about whether they are eventually going to move to a fiscal union that will match the monetary union, or they create a different type of eurozone. And I think what we saw this summer is that the markets are starting to push and challenge. You can hold off with purchases from the European Central Bank for a while; you can hold off with purchases from the EFSF; but the fundamental issues have to be addressed, and the rest of the world is waiting because the uncertainty that comes out of Europe and to an extent the United States, hurts everybody.
So, one issue is restructuring of the debt. But what I'm really saying is, that is not sufficient. That does not bring Greece back to competitiveness. And then there's the question of even if you restructure that debt, what about some of the other countries? And then ultimately, one has to look back and say how did Europe get to this position, and if it is going to have a fiscal union that will match the monetary union. Now maybe they don't want to go in that direction, but if they don't that will have severe implications for the Eurozone." [watch the full interview below]
Related: Does the Euro Have a Future? by George Soros -on the missing ingredient, a "common European treasury" (New York Review of Books)