The sovereign debt crisis in Europe shows that the world’s economic woes are “far from over” and highlights the need for reforms, the vice chairman of the World Economic Forum said on Sunday.
“What we… see as we gather in the growing storm of a European sovereign debt crisis is that the (global) crisis is far from over, that it is in many ways rekindled in a dangerous new contagion,” Mark Malloch-Brown said.
“The need to get the right international financial reforms in place remains as pressing as ever,” Malloch-Brown said at the opening session of a two-day World Economic Forum Global Redesign Summit in Doha.
But, “this is not about any kind of single global fix,” he told AFP on the sidelines of the summit. “It’s finding smart ideas which work for particular issues.”
The European crisis has stemmed from Greece’s heavily indebted economy and from turmoil in the Spanish banking sector, and has raised fears that some eurozone economies will no longer be in a position to repay debts.
World stocks and the euro, which dropped to a four-year low against the dollar last week, have been under severe pressure due to concerns over the debt crisis.
A panelist at a later session, chief executive officer of Abraaj Capital, Arif Naqvi, also said that continuing difficulties in Europe indicate that the world is not yet out of the crisis.
“I think the euro crisis proved to us that we’re actually just at the edge of a cataclysmic event. We’re still at the point where we can’t take anything for granted,” he said.
However, Malloch-Brown said that Europe’s debt troubles could provide an impetus for reforms.
“If last year’s experience is anything to go by, a lot of the work on improved financial systems occurred while the crisis was very hot,” he said. But “we’ll have to see whether a renewal of the crisis has that effect or not.”
The wide-ranging, 600-page Global Redesign Initiative report presented at the summit identifies areas of weakness in the international financial and monetary system, highlighted by the global crisis, which it says need to be addressed.
Global economic imbalances, insufficient risk management and a lack of transparency have contributed to the crisis, the report said, adding that high institutional and consumer leverage exacerbated it and liquidity dried up as it unfolded.
And the failure of some financial institutions that were thought to be strong “lead to a crucial loss of confidence in the markets,” according to the report.
In 2008-2009, “the full extent of the world economy’s systemic weaknesses and cooperative deficits were laid bare,” the report added.
“It would be a serious, historic error to revert to complacency and return to business as usual,” it said.