World Bank warns double-dip downturn threat c


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10-06-2010 08:25 AM


ABC Canberra 666

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ABC Canberra 666


10-06-2010 08:25 AM



10-06-2010 09:05 AM

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2010-06-10 08:25:43

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RYAN, Peter, (journalist)


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World Bank warns double-dip downturn threat c -

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The World Bank says a double dip recession can't be ruled out for some countries if the European
debt crisis continues to widen. But in its global economics prospects report the Bank says there's
no evidence yet that Europe's debt woes are spreading to the rest of the developed world.

TONY EASTLEY: The World Bank has warned a double dip recession can't be ruled out in some countries
if the European debt crisis continues to widen.

But in its global economic prospects report out today, the bank says there's no evidence yet that
the debt woes of Greece, Spain and Portugal have spread to the developed world.

Even so, there are concerns that the credit problems in Europe could threaten the solvency of banks
in emerging economies.

The report's co-author Mick Riordan spoke from Washington to our Business editor Peter Ryan.

MICK RIORDAN: The situation is very fluid and things are still moving every day, but for the short
term we've got to be very careful.

Our hope is that the steps taken today may be able to contain further contagion of the crisis in

PETER RYAN: What is the likelihood of the much feared double dip recession if the debt crisis
spreads from southern Europe?

MICK RIORDAN: A double dip recession at the global level is very unlikely. The possibility of a
double dip recession emerging within our four selected countries in Europe is another issue and the
more vulnerable countries in Central and Eastern Europe, as well as in some in North Africa for
example, may be hit once more.

PETER RYAN: Some economists are making comparisons with the sub-prime mortgage crisis in the US,
but do you see any of those symptoms in Europe?

MICK RIORDAN: There are latent problems clearly in the banking system across Europe, in the same
fashion as we had the issue of who's holding these toxic CDO's in the United States.

The question is who's holding these potentially toxic sovereign debt issues across the major
commercial banks of Europe.

And on the other hand we've seen a massive program undertaken in Europe as we saw in the United
States and hopefully this is sufficient to stem the immediate crisis.

PETER RYAN: But there are some similarities in the sense that there is a lot of fear and suspicion
about inter-bank lending at the moment, is that a concern?

MICK RIORDAN: It is a concern. It is really a question of bank A questioning bank B's holding of
some of these assets, but it hasn't emerged to any level that's by any means critical.

PETER RYAN: With credit becoming tighter and fear rising is there a fear that the solvency of some
banks in Europe is an issue or in emerging countries?

MICK RIORDAN: I would say so. You have for example banks from Portugal and Spain that have very
large exposures in Latin America and of course you have banks in countries like the Netherlands,
Germany and France and have larger exposures in Central and Eastern Europe.

So, the issue then becomes if the country itself, the host country of the bank is affected quite
severely that you would have spill-overs to emerging markets that way.

PETER RYAN: Are you concerned that because of the very strict austerity measures that are being
introduced in Greece and Spain for example, that poverty becomes a risk?

MICK RIORDAN: Particularly for the poor as you say the possibility that as countries constrict
their public spending and also bilateral development assistance to poor countries abroad could be
hit, that the latter in particular, is a concern of ours and of course the former as well.

TONY EASTLEY: The co-author of the World Bank's Global Economics Prospects report Mick Riordan
speaking with our business editor Peter Ryan.