In a Spiegel online interview Zoellick laments that “the European political process waits until pushed to the brink, and then Europe finds a partial solution. That is not sufficient.” He says that Europe has been “a day too late and a euro too short” and that European leaders need to focus on addressing the fundamental issues underlying their financial problems.
“Time is of the essence,” Zoellick warns.
But Zoellick also is skeptical about the widespread effectiveness of euro bonds, saying that they would “lose the discipline of the market.” Rather, he favors proposals to use euro bonds for Maastricht-compliant sovereign debt.
And on Greece, Zoellick thinks a potential “Grexit” from the euro zone could be another “Lehman moment.”
“No one could have predicted in advance all the aftershocks of the failure of Lehman Brothers,” he says. “Nobody knows.”
Either way, the balance of power between the West and the rest of the world appears to be shifting. Recognizing this change, Zoellick calls the E.U.’s request for China to make contributions “a mistake.”
“That is not how to work with China,” he says. “It showed weakness. Also, the average per capita income in China is about $5,000 a year. In Europe, it is close to $40,000 a year. So it would be hard for Chinese leaders to explain to their people why China is bailing out Europe when they still have about one-eighth the income.”
He also commends China for its flexibility in responding to the new economic facts on the ground. “Developing countries have recovered better, but they recognize the need to continue to adjust,” he says. “Look at China: This is a country that had grown 10 percent a year for 30 years and yet Chinese policy-makers are recognizing that the current model of growth will not work for the next 30 years. So the Chinese are starting to consider changes.”
He recommends that Europe take a similar approach, suggesting that in negotiations “Germany needs to continue to emphasize fiscal and structural reforms.” But, it must also balance those demands with “deeper integration,” and it must “be clearer about how it will assist reforming countries as they take necessary steps.”
All in all, one of the world’s economic leaders provides important insight into what we can expect as the world economy continues to adapt and change.