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World Bank chief launches scathing critique of western economic leadership as US and Europe struggle to recover Global stock markets are entering a “new danger zone”, the head of the World Bank has warned in a scathing critique of economic leadership in the US and Europe. Robert Zoellick said the global economy was going through a multispeed recovery with western economies stuck in the slow lane following the downgrading of US government debt and the ongoing crisis in the eurozone. Investors have displayed increasingly erratic behaviour in recent weeks, with the FTSE 100 index in London rising and falling by 3% in successive days as financial professionals digested the prospect of another worldwide recession. “What’s happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries,” said Zoellick, whose institution invests in developing countries. Echoing the concerns of the Standard & Poor’s credit rating agency, which has stripped the US of its AAA credit rating due to fears of political paralysis in the world’s largest economy, the World Bank president indicated that American and European leaders were not acting quickly enough. He said: “I think those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. I don’t say those words lightly … so that policymakers recognise and take it seriously for what it is.” Zoellick said that problems related to sovereign debts and uncompetitive economies in the 17-state eurozone had often been dealt with “a day late”, stoking investor concerns that governments and central banks were not getting on top of multiple crises or even approaching them in the right way. “That [worry] has accumulated and so we’re moving from drama to trauma for a lot of the eurozone countries,” he said. On the US, Zoellick said the fundamental strengths of the American economy were not the main concern, but “frankly that markets are used to the United States playing a key role in the economic system and leadership”. He said efforts to cutUS government spending had so far been focused on discretionary items rather than big-ticket welfare programmes 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,” he said. Zoellick added while market confidence had endured a torrid month, the real issue was whether this will spread to business and consumer confidence, something that was still unclear. “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 … so this is a very rapid change in a relatively short span of time in historical terms.” Zoellick spoke at the Asia Society in Sydney, Australia, on the eve of a summit between French president Nicolas Sarkozy and German chancellor Angela Merkel that will attempt to forge a co-ordinated path out of the eurozone crisis. Fears over sovereign debt burdens spread to France last week as destabilising rumours spread that the country might join the US in suffering the previously unthinkable punishment of losing its AAA rating, which threatens to raise the state’s borrowing costs. Chancellor George Osborne hinted that he shared Zoellick’s concerns when he admitted that closer fiscal union, perhaps driven by the issue of eurobonds underwritten by the 17 single currency members, might be the only solution to the crisis. Asked on BBC Radio4 if the only answer for the eurozone was some form of fiscal union, he said: “The short answer is yes.” World Bank Economics Global economy United States Europe Europe Dan Milmo guardian.co.uk