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Zoellick: Danger zone ahead

Sydney - World Bank chief Robert Zoellick Sunday warned of a "new danger zone" ahead for global markets, saying investors had lost confidence in the economic leadership of several key countries.

Zoellick said a convergence of events in the United States and Europe had rattled investors in countries already struggling to cap sovereign debt issues and unemployment.

"And what we've seen is that confidence is a fragile element of how the market economy works," the World Bank Group president told an Asia Society dinner in Sydney.

"And I think that those events combined with some of the other fragilities ... have pushed us into a new danger zone. And I don't say those words lightly."

Zoellick said he was making the point, not so people would run out of the room to call their brokers, but so that policy makers would take it seriously.

He said the United States had contributed to the drop in confidence in the markets following the bitter debate in Congress to ensure that the country did not end up with a disastrous debt default.

"It's not that the United States faces an imminent problem," he said.

"Frankly, markets are used to the United States playing a leading role in the economic system and leadership and so when they saw the 'sturm und drang' in Congress and with the executive, it made them uncertain about, well does the United States really know where it's going? And is it going to get there?"

The problems were more serious in the eurozone, he said, where the processes for dealing with sovereign debt and some competitiveness shortfalls had lagged.
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