World Bank chief Robert Zoellick on Thursday hailed a European debt crisis accord as a “first important step” and said it buys time that must be used to repair troubled economies.
European leaders announced earlier Thursday a plan to shore up their bailout facility, pledging new funds for Greece and persuading banks to agree to major writedowns in an accord reached after two successive summits.
“I am hopeful that this first important step can lead to a broader approach in helping the world economy resume growth,” Zoellick told reporters on a visit to the Philippines.
But he said eurozone leaders needed to make more difficult decisions.
“Problems cannot be solved by waving a magic wand. It will require a follow-through.”
“This basically buys time and you have to use that,” he added. “Use this time to build some of the foundations for growth.”
Asked what those steps should be, Zoellick said eurozone countries needed to make the same structural reforms undertaken by East Asian economies that helped them recover from the Asian financial crisis in the late 1990s.
These include tax reforms to broaden governments’ revenue base, opening markets to competition to raise productivity, and building infrastructure.
And while governments cannot avoid macro-economic issues like budget deficits, “there’s still a lot of people out there without jobs,” he said.
Zoellick said the eurozone debt crisis was starting to affect developing economies elsewhere, with stock markets tumbling by an average of 20 percent, currencies gyrating, and export prospects dampened.
French President Nicholas Sarkozy announced at a summit in Brussels that eurozone leaders agreed to leverage the 440-billion-euro European Financial Stability Facility to one trillion euros ($1.4 trillion).
Boosting the bailout fund is a key element in the crisis response eurozone leaders have promised, along with making banks agree to write down billions in Greek debt and recapitalizing the banking sector so it can absorb the hit.
The bailout fund, the main weapon against the crisis, has already flown to the rescue of Portugal and Ireland, and would be tapped in a new Greek bailout.