World Bank chief Mr Robert Zoellick warned of a new and more dangerous time ahead in the global economy, with little breathing space in most of the developed countries as a debt crisis hits Europe.

Mr Zoellick said the Eurozone's sovereign debt issues were more troubling than the medium and long term problems which saw the United States downgraded by Standard and Poor's last week, sending global markets into panic.

Mr Zoellick, referring to the global financial crisis, said “We are in the early moments of a new and different storm, it's not the same as 2008. In the past couple of years, the world has moved from a troubled multi speed recovery with emerging markets and a few economies like Australia having good growth and developed markets struggling to a new and more dangerous phase.”

He said “Most developed countries have used up their fiscal space and monetary policy is about as loose as it can be.”

Mr Zoellick said the Eurozone's structure could turn out to be the most important challenge the world economy currently facing, with some hope for Spain and Italy but debt crippled Greece and Portugal unable to devalue.

Markets swung wildly this week on rumours of a French credit downgrade over the debt crisis, which started in Greece and is now fuelled by fears that Spain or Italy might default, sparking a break up of the 17 nation currency. Investors are questioning whether France and Germany, the Eurozone's two largest economies, can continue to underwrite other states' debts without losing their top credit ratings and falling victim to the crisis themselves.

(Sourced from thestatesman.net)