Zoellick: Don’t expect a Chinese silver bullet
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Emerging Markets

Zoellick: Don’t expect a Chinese silver bullet

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China and other emerging countries won’t ride to Europe’s rescue in Cannes this week, World Bank president Robert Zoellick told Emerging Markets

Debt-laden eurozone countries cannot expect to be bailed out by emerging economies in Cannes this week, World Bank president Robert Zoellick has warned.

Playing down hopes of a repeat of the $1 trillion global rescue package unveiled at the G20 London summit, Zoellick told Emerging Markets that China would not come to this week’s G20 Summit with a “silver bullet”, in the form of a mass purchase of bonds of indebted eurozone countries such as Greece, Spain and Italy.

Instead he called on the G20 to stand behind the measures set out by eurozone leaders at their October meeting in Brussels to bail out Greece, recapitalize the region’s banks and expand its rescue fund, the European Financial Stability Facility (EFSF).

Asked whether emerging economies would use the G20 Summit to provide short-term help in order to prevent a further downturn in market sentiment and consumer confidence, Mr Zoellick said it was up to eurozone to “solve its own problems”.

“I don’t think that one should raise expectations about what we can expect them to do to help,” he said. “Europeans are going to have to be the principal agents in solving Europe’s problems. The misleading path is to assume for any of these countries that somebody is going to bail you out and solve your own problems.”

Eurozone leaders unveiled a package of measures in Brussels on October 27, including a plan to leverage up the firepower of the EFSF to as much as E1 trillion.

However, they left the details vague, setting out two options: providing “credit enhancement” – risk insurance – to private investors who buy sovereign bonds in the primary market; or “using resources” from public or private investors.

EFSF chief executive Klaus Regling immediately flew to Beijing for talks with senior Chinese officials, at which the idea of China investing in European sovereign bonds was high on the agenda.

However, speculation over a deal under which China commits to a significant purchase of eurozone bonds at the G20 has faded, a point reinforced by Zoellick. “I don’t think that in the eurozone people should be looking for a silver bullet from the Chinese,” he told Emerging Markets.

The World Bank chief, whose role is to help low-income countries, said one should not expect a country where people had an average income of $4,000 a year to bail out an economic bloc with an income of $38,000.

However he said he was more optimistic about emerging markets channeling financial support through the International Monetary Fund, or using so-called special arrangements.

He also threw his weight behind moves by eurozone leaders to implement greater fiscal union to match monetary union – a gap now seen as a major flaw in the euro project.

“The eurozone deal has bought time. The question is what type of fiscal union can be built on top of monetary union,” he said. “It can’t be overnight, but people will be looking at the steps that are being taken.

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