European Central Bank (ECB) President Mario Draghi pledged last week to do “whatever it takes” to protect the eurozone from collapse, and the markets are awaiting any decision from the central bank arising from its policy meeting on Thursday. However, Robert Zoellick, former president of the World Bank, warned that monetary easing will do little to solve the region’s debt crisis.
“Monetary policy fundamentally buys time,” Zoellick told CNBC on Monday. “It doesn’t deal with the fundamentals.”
What is most critical right now, insisted Zoellick, is that debt-laden nations like Spain and Italy implement fiscal and structural reforms. “The Germans are right, they (Spain and Italy) have to fix their fiscal situation, but also structural reforms for competitiveness.”
He added that eurozone nations need to ensure that Spain and Italy have access to funding as they carry out their reforms. Spanish and Italian banks must be recapitalized.
As far as the role of the United States in the debt crisis, Zoellick said that if the U.S. can successfully rein in its budget deficit, that would be a big boost in confidence for global markets.
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