World Bank head: EU fiscal pact good, but reforms need growth focus

Feb 3, 2012, 16:40 GMT

Munich - European countries are focusing too much on short-term tactics, and not enough on long-term strategy in their attempts to bolster the continent's economies, World Bank President Robert Zoellick said on Friday.

Speaking at the Munich Security Conference, Zoellick added to the voices that have openly worried that Europe's German-led focus on austerity and budget-cutting to balance finances has been at the expense of plans for growth.

'The fiscal pact is good,' Zoellick told the audience, referring to the recent treat whereby most EU nations agreed to stick to strict budget controls.

'What I'm quite concerned about are the politics of reform as much as the economics of reform.

'It's pretty hard to do fiscal discipline . if there's no growth. There has to be some opportunity here to give some new support.'

That support, he said, was needed to encourage troubled countries to stay on the reform path and to help them on their way.

He was particularly critical of Franco-German plans for a financial transaction tax.

'Does anybody believe the financial transaction tax is the way to saving the eurozone?' echoing concerns that such a tax - which is not likely to be implemented in other regional economies - would drive large parts of the finance industry abroad.

Britain has been especially critical of the proposal, as it would likely harm its financial industry.

Turning to German members of the panel, Zoellick asked what they would think of a different tax more focused on German industry.

'If you had a big tax imposed on your auto industry, do you think that's the way to save the euro?

'It's a peripheral issue when you should be thinking strategically.'

He said European leaders have to start thinking about plans to spur growth and protect the economy. He mentioned eurobonds, a plan to pool European debt that has routinely been rejected by Germany.

But failing that, he asked how European leaders expect to save their economies if they do not implement plans to boost growth. Failing that, he threw out scenarios under which Italians eventually reject Prime Minister Mario Monti's plans to restructure that economy and asked how Germany's trade-oriented economy would fare in a post-euro world where Germany once again used the Deutsch Mark.

'It's bigger than economics,' said Zoellick. 'The probabilities of political success in the core countries will be dependent on working with them to offer them some level of support for taking the actions.'

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