World Bank's Zoellick: Eurozone is worldwide problem

World Bank President Robert Zoellick speaks during a briefing at the IMF headquarters April 19, 2012 in Washington, D.C. Zoellick says that four years after eurozone debt became a problem, the world is entering a new and more precarious phase of the crisis.

Jeremy Hobson: Hi I'm Jeremy Hobson, from the Marketplace Morning Report. On Wednesday, I went to Washington to speak with Robert Zoellick, the President of the World Bank. We talked in his office at the bank.


Hobson: President Zoellick, thank you so much for joining us.

Zoellick: My pleasure.

Hobson: Well let me start by asking you about the European debt crisis. There's the big election this weekend in Greece. What are your major concerns about that?

Zoellick: Well, you know the eurozone has been an ongoing source of anxiety not only in Europe but for the whole international economy. It's a combination of problems -- sovereign debt, banking, for some countries, competitiveness. And as Europe has moved to the brink each time, they've provided some liquidity, often through the European Central Bank, but they haven't been able to deal with those fundamentals, and as they've done so it's always sort of a day late and a euro short. And so I think, going into the Greek election, the question will be: Will the next Greek government negotiate to stay within the eurozone with a sweeter deal -- will that be acceptable to the Germans and others? And then, what are the ramifications of this for Spain and others that have problems with their financial system and debt?

Hobson: Do you think the euro is going to stay together?

Zoellick: Um, that's ultimately for Europeans to decide. I think it can, I think it would be healthier for the international system, but it will require more and different actions than have been taken so far.

Hobson: You've just warned that developing countries far from Europe are at risk from this whole crisis -- what are you asking them to do?

Zoellick: Well, start out with the fact that one of the things that I think many people are unaware of is over the past five years, developing countries have provided about 2/3 of global growth. So the supports of the system have come from emerging markets. But what we are suggesting is -- we are moving into a new and in some ways more precarious phase because we are four years into the crisis. Some of the politics in the countries is running thin, starting to get some increase of protectionism, renationalization, and so we need to have developing countries prepare for the uncertainty. Many of them had stronger fiscal buffers, their budget situation was better going into the crisis. So it makes sense if you can to rebuild that to deal with uncertainty, to try to avoid having so much short term debt that you have to roll over the precarious position. And third -- this is true for developing or developed countries -- focus on the fundamentals. It may be infrastructure for productivity, it may be human capital, but those are the basis for future growth.

Hobson: But if you are asking them to reduce their debt right now isn't that going to make the global economy weaker than it is?

Zoellick: It depends on their overall position. Many developing countries actually started to run into a risk of overheating. They grew quite quickly, and so they needed actually to take some actions with monetary and fiscal policy. And again, we are not trying to suggest that they put the breaks on their economic expansion, but we're suggesting they have to be well prepared for the eventualities that none of us can predict.

Hobson: How do you think that the euro crisis has been handled from other power centers in Europe, from the United States, from all over the world?

Zoellick: Well you know, to be fair, you don't really have a one governmental system in Europe. So the European project itself is having to invent as it goes. And on the one hand, there's a few countries -- Germany being the principal one -- that had taken actions in the past so they had stronger credits, they've got stronger economies, unemployment is lower -- and the German's obviously are weary of trying to subsidize other countries unless they make reforms. That's sensible in terms of fiscal and structural forms for competitiveness, but if you have countries like Spain and Italy that are making reforms, there's the question if Germany and others can do more to help them get through this difficult period. So what you've seen is an ongoing negotiation. Sometimes the negotiation moves to brinkmanship, and brinkmanship in a world of risk is dangerous.

Hobson: Is it hard to keep all this stuff together, it's such a complicated problem and there are so many different players in it.

Zoellick: Well the world economy is complicated, but you could flip that, there's also great opportunity. I work with developing countries, 20 or 30 years ago people would have seen developing countries as the source of the problem, the source of charity cases. Now, developing countries are a source of growth and future potential growth. Many people may be unaware that sub-Saharan Africa grew at about 5 percent a year for ten years before the crisis. It's pretty much a return to those growth levels. So I think even as we are dealing with today's problems, we need to be dealing with trying to think of the structure reforms -- trade, infrastructure, openness, human capital investment -- so that we take advantage of an opportunity.

Hobson: What's the next big crisis, the next major problem that you're worried about once we get past this European debt crisis?

Zoellick: Well that's a big thing to get past, but I think the other issue is, you know, the United States still looms very large on the world economy.

Hobson: Our debt, you're talking about?

Zoellick: Well, I've started out with our economy, but I think the key issue that people will be focusing on with the congress but also this president, and if he's reelected or Governor Romney, about how to deal with what's called the 'fiscal cliff.' You have a number of things happening at the end of the year that relate to the budget, relate to spending, relate to potential revenues, relate to debt, and I think these are very important not only for the U.S. economy, but for the United States' ability to lead globally. So about a month ago, the Australian foreign minister, Bob Carr, was in Washington and he said something that stuck with me. He said, 'the United States is one budget deal away from restoring its global preeminence,' and I think that's a good way of focusing on what the U.S. can do.

Hobson: You are about to leave the World Bank, what do you think is the best use of funds since you've been here and what's the worst or least effective?

Zoellick: Well, I think the point for the bank is we have different types of mechanisms -- we fund the private sector, we connect with sovereign funds, invest in sovereign equity funds, we do development for malaria and education and others -- and I think the key is there's no silver bullet. We have to recognize the differences in developing countries and we have to treat them as clients. The most important thing to recognize is that financing is just one element and increasingly what the bank does is share the knowledge and learning and experience pragmatically about what works and help countries build their markets and institutions and their capacity. So it's how do you connect funding with a broader development solution?

Hobson: But has there been some big project that you're quite proud of, that you think is a model for the future?

Zoellick: I think we've done some very interesting things ranging from small community development projects in Afghanistan that get local ownership, which have had high economic rate of returns but also build stability, to an asset management company that we created with IFC, our private sector arm, that's drawing $4 billion to the private sector in developing countries that didn't exist before.

Hobson: The World Bank came out with a report last week that I think would surprise some people because it's not what we think of when we think of the World Bank, but it said that as the world get's wealthier the amount of waste around the world is going to almost double in the next 13 years. Is that something that keeps you up at night in your job?

Zoellick: Well, I sleep pretty well, but maybe it's because I exercise [laughs], but I think what that emphasizes is that the bank is much more than a bank as a financial institution. It's a research and analytical institution and one of the things that I've tried to drive forward at the bank is opening up our information, opening up our data sources and seeing ourselves as part of a broader network to stimulate debate in developed and developing countries. And environmental and conservation issues are a key piece of our work. We've done a lot in biodiversity, we created some special climate investment funds that are helping developing countries pragmatically on the ground. So it reflects the fact that the world economy reaches quite widely and we need to try to support our client countries as it does so.

Hobson: Well, I want to ask you about climate change because it's something you've talked a lot about. I've read some of what you've said about it and the general theme seems to be, stop waiting around and do something. Who do you think is holding up progress on climate change?

Zoellick: Well, I'm not really in the blame game. I think what I've been able to see is -- we're a development institution, we'll never deal with the question of carbon unless you engage developing countries. Many of the negotiations pitted north versus south which I think was unproductive. So what we've tried to do is -- through these climate investment funds and other things we've done with countries -- to try to show how you can have win-win prospects on energy efficiency. New uses of technology -- we've done some investment in alternatives, how to connect this with your transportation systems, adaptation policies, deforestation -- where we've made very big headway. And the importance of this is it shows real progress on the ground, it draws developing countries into a sense that they are part of the solution, and I hope over time that will bring countries together for the other types of arrangements they need to make. But, what I've been critical of is sometimes this idea that the real focus of attention is just on getting 195 countries to agree on a text. What we're trying to do is make a difference on the ground.

Hobson: Do you think that the developed economies of the world right now have an unsustainable standard of living?

Zoellick: Um, no, I'm not an anti-growth advocate. I think that it depends on the economies, I think that there is going to need to be adjustments in Europe, and I think you've seen with the advent of the euro there were some countries in the south of Europe that, frankly, were able to take advantage of that and they lost the reform-drive that they needed to take. So my goal is actually to increase developing countries standard of living, and as they grow they will be able to buy more from developed countries.

Hobson: What have you learned about people in the last several years that you've been working at the bank?

Zoellick: Well, I guess that's an ongoing education. Well, I'll say this, we have people from about 170 countries at the bank, we have 188 shareholders, and there's a great challenge but also a great opportunity when you draw people together from different cultures and experiences and try to solve problems in a pragmatic way. I brought in the first chief economist from the developing world -- this is Justin Lin who was from China but also educated at the University of Chicago. He was a great addition, he and I had different perspectives from our different backgrounds, but part of our role was to stimulate debate and as I've suggested, he's been one of the big promoters for the need of how developing countries, for example China, can invest in Africa and manufacturing, and so you can create win-win opportunities. But, as the lesson of China has shown, this just won't happen unless you put the fundamentals into some of these structural reforms to make markets work better.

Hobson: Let me just ask you a couple of final lightning round questions here. If your successors think of one word when they think of your tenure here at the World Bank, what would you like it to be?

Zoellick: Oh I don't know. Successful.

Hobson: How many countries have you visited?

Zoellick: Too many to count. It does give you an interesting perspective. Actually, I'm trying to do a little bit more domestic travel in the United States. I haven't done enough of that recently.

Hobson: Which country has the best food that you've been to?

Zoellick: Oh that's a tricky one. I think I like my wife's cooking.

Hobson: That's a good diplomatic answer. What will you miss most about this job?

Zoellick: The range of interesting people dealing with a fascinating set of problems. And I'm very much a believer in that when you have these jobs, your role is not just to sit in the seat and attend the meetings or read the papers, but you try to focus on results. And I've tried to orient the institution in that direction.

Hobson: Any idea what's next for you? Will we see you in a Romney administration if there is one?

Zoellick: Well, I've consciously, as I've left the bank, not had discussions in any detail about what I would do next. And so I will probably have an association with a university and I will probably do some speeches, and I'll decide about politics after I leave.

Hobson: Robert Zoellick is the president of the World Bank. Thank you so much for talking with us.

Zoellick: Thanks for inviting me.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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