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World Bank Chief: 'Dour' Europe can learn from Asia

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World Bank chief on recovery
STORY HIGHLIGHTS
  • World Bank chief: Asia has lessons for Europe
  • Zoellick: "I didn't fear the collapse of the euro"
  • Moves to reduce public debt shouldn't "strangulage" recovery

(CNN) -- The head of the World Bank says that in the current crisis in Europe, lessons can be learned from Asia.

"What I saw at the end of last year was while Europeans were simply focusing on the dour and the negative, Asians -- who'd gone through this in the 90s -- started to say, 'Well maybe we're going to have to open some service sectors to competition to create expansion of growth'," World Bank President Robert Zoellick told CNN's Richard Quest.

Much like the euro has been depressed by the spiraling sovereign debt crisis, Asian economies such as Thailand and South Korea faced a similar monetary crisis in 1997 and 1998.

"I didn't fear the collapse of the euro," Zoellick said. "What I was concerned about was that you'd have another spread of a lack of confidence as you saw in the United States in 2008 (that) paralyzed markets."

Zoellick spoke to CNN about the wave of austerity measures sweeping Europe as government debts mount. Those debts piled even higher after governments poured stimulus cash into their economies to spur liquidity when the global credit markets nearly lurched to a halt in late 2008.

"You can cut spending, you can try top reduce some of your debt, but you can also try to have policies ... to get rid of red tape, to allow enterprises to form, to help entrepreneurialism, to help create jobs, Zoellick said. "This can't be only about the politics of austerity; it also has to be about policies of prosperity and growth ... you don't want to make regulation into strangulation."

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Austerity measures loom large for European economies, which fear downgrades in their credit ratings will further restrict investor appetite for government bonds. Greece has announced plans to partly privatize rail, water and postage services to cut $3.7 billion in the next three years. Portugal has a $2.7 billion plan marked by pay and hiring freezes, job cuts and higher retirement ages in the public sector. Spain has plans for $19 billion in spending cuts to reduce its deficit to 9.3 percent this year. Italy plans to cut $30 billion in 2011 and 2012.

All this has produced a backlash from labor organizers, who have announced a Sept. 29 "European Day of Action" for mass demonstrations against the wave of public sector cutbacks.

"Let's not forget that the public policy cannot be guided by the anxiety of traders," Juan Somavia, director general of the International Labour Organization, told CNN.

"We know that they can get it wrong. We know that they can be over reactive. And we already saw that in 2006, 2007, 2008," Somavia said. "The rating agencies, they don't see the problem coming. They don't see the crisis coming and they now may be creating a crisis that was not there."

Somavia says the motivation of austerity measures "is necessary and a good one. We need to reduce debt and deficits. But the timing is wrong ... if we continue on this track, growth will come down and unemployment will grow and social tensions will become higher."

Despite the problems on the continent "it's hard to believe Europe can't get itself back in order, but it will be a political challenge," said Zoellick of the World Bank.

"The politics of Europe, as you know, are very complex because on one hand people have to manage the national politics that elect them," he said. "The question is, how well will they also act on the European level."