Zoellick: Developing World Will Lead Economic Recovery
The German Marshall Fund -
The global economic crisis led governments on both sides of the Atlantic to take unprecedented actions to prevent a worldwide depression and stimulate economic growth. While these measures were successful, they will have to be phased out over the next couple of years. But unwinding government intervention will require a fine balancing act and extensive cooperation among the various policy instruments as well as among regulators and policymakers within and across national borders. While the global recession was synchronized to an unprecedented extent, the timing and robustness of recovery will vary significantly between different parts of the world, complicating exit strategies. The challenge is particularly daunting for Europe where policy makers are now faced with the threat of a fiscal crisis in some of its Southern Member States that could threaten the EU's currency union and undermine hopes for a swift economic recovery of the Eurozone.The stakes are high. If policymakers invoke exit strategies too late, public expenditures may be wasted, unneeded national debt may be incurred, and public borrowing constraints may be reached. However, if exit strategies are invoked too early, policymakers may run the risk of financial instability and a weak recovery.At the same time, to lay the groundwork for long-term, sustainable global economic growth, policymakers must work together in the G20 and beyond to achieve meaningful financial sector reform and to build the foundation of a safer, more stable, and more balanced global financial system.