A growing chorus of financial eminences is calling on world leaders to gain control of a spreading financial crisis one day ahead of a Franco-German meeting that could test whether the political will exists to do so.
Speaking in Sydney, Australia on Sunday at a conference on Asia, World Bank President Robert Zoellick said: “I think that confidence in economic leadership has been slipping. And it will be important that the primary economic actors take steps, both short and long term, to restore that."
Making similar points, the finance ministers of Canada, South Africa, the U.K., Singapore and Australia, writing in Monday’s Financial Times, linked the world’s current economic malaise to a "lack of confidence in efforts by governments to address the structural problems that underpin weak growth, high unemployment and unsustainable fiscal balance sheets."
The comments followed an op-ed by Pimco CEO Mohamed El-Erian (left) in Friday’s Financial Times warning that “any further mis-steps from American and European policymakers risk converting raging crises within the global economy to a more devastating crisis of the global system.”
These coincidental warnings may be meeting their first test ahead of German Chancellor Angela Merkel’s and French President Nicolas Sarzkozy’s meeting in Paris on Tuesday, with particularly close attention being paid to the subject of Eurobonds. A Eurobond issue would allow the currency union to jointly issue debt, thus allowing the credit of financially stronger euro members to shore up the poor credit of weaker members.
But a German finance ministry spokesman says creation of Eurobonds is off the table in tomorrow’s talks. Reuters reports the French government has also ruled out Eurobond talks, even as two German trade associations came out in favor of such a debt instrument. Eurobonds would raise borrowing costs for Germany and France, but lower them for Europe’s most indebted nations.
Neither Germany nor France has said a Eurobond is out of the question at some future point, but neither is prepared to discuss the matter in Tuesday’s talks.
It is this lesser sense of urgency that is at the heart of some financial authorities’ concern. Said Zoellick: "The European decision mechanism has continued to muddle along and put together packages that while are significant in their political difficulty have not matched the test of the economic need, and that has, I think, contributed to the weakening of confidence."