18.06.2012
By Simon Miller
The heads of the World Bank and the Organisation for Economic Cooperation and Development (OECD) have warned that Europe's response to its debt crisis was muddled and rattled the markets.
Speaking prior to the G20 summit in Mexico, World Bank's outgoing president Robert Zoellick said everyone knew that the G20 meeting was coming at an absolutely critical time but they were "waiting for Europe to tell us what it is going to do".
Addressing business leaders at the B20 summit on Sunday evening - which is held in tandem with the G20 summit - Zoellick said last week's "wasted" €100bn (£80.4bn) Spanish bank bailout was an example of Europe's institutional shortcomings.
"Markets can manage risks that they're well aware of. The danger we're creating is that the pattern of policy-making is increasing uncertainty and making markets more nervous, which has a negative feedback," he said.
Zoellick added: "To take your Spanish example; it's actually €100bn, and to have that as being a negative story? It's amazing. Why was it? It is because the delivery was extremely poor."
He added that markets were confused as to that were the roles of Europe's various stability mechanisms and its central bank.
"People did not know whether it was the European Financial Stability Facility or the European Financial Stabilisation Mechanism. What is the subordination?" Zoellick said. "So they took a very big bullet and they wasted it."
Meanwhile, the secretary general of the OECD Angel Guria called on Europe to take down the scaffolding still clinging to its systems of governance.
"Europeans have to display the awesome firepower that they have at their disposal and they have to transmit the message that they're willing to use the awesome firepower," he continued.
Gurria said that the key to halting the crisis was to deploy the resources of the European Central Bank (ECB).
"The ECB can help stabilise the bond market and the ECB really is the bazooka," he said, adding: "The problem is if you go into your championship bout, into the ring with one hand tied behind your back, you have a pretty fair shot at losing."
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