World Bank president Robert Zoellick says markets face new debt danger zone

Robert Zoellick, president of the World Bank, warned yesterday that world markets have entered a ‘new danger zone’ and that investors had lost confidence in the economic leadership of several key countries.

His comments at the Asia Society’s annual dinner in Sydney is bound to fray dealers’ nerves even further ahead of tomorrow’s crucial meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel in Paris, at which they will discuss the european debt crisis and economic governance of the 17-nation region.

Stark warning: World Bank president Robert Zoellick believes that investors   have lost confidence in the economic leadership of several key countries

 

The leaders of Europe’s two biggest economies have called for their parliaments to approve measures by the end of September to strengthen the euro area bailout as agreed by European leaders on July 21. That summit agreed in principle on a second bail-out for Greece and measures to halt contagion to larger economies, but it still failed to calm market fears that the debt crisis is spiralling out of control.

The leaders now meet amid continuing market turbulence driven by concerns about sovereign debt levels and the banking sector.

French banking giant SocGen was forced last week to deny it was in financial difficulties after its shares plummeted 15pc in one session.

Neurotic investors are worried about French banks’ exposure to Italian government bonds and to Greece, along with concerns about France’s public debt. Credit rating agencies all confirmed France’s AAA rating last week.

Sarkozy is apparently ready to push for the eurozone to issue new bonds backed by all the member countries, a move which would bring them closer together.

The new eurobonds could then be used to refinance individual debts issued by Greece, Ireland, Portugal, Italy, Spain, Belgium or any other country that runs the gauntlet of market speculation.

Italy, which has been at the centre of the eurozone debt crisis, hastily rushed through a tough new €45.5bn package of cuts and tax rises designed to slash Italy’s budget deficit by 2013. It hopes the move will appease markets and the European Central Bank.

Former City minister Lord Myners wants the Treasury and the Financial Services Authority to look at the impact high frequency or ‘black box’ trading is having on stock markets, according to a report.

It was blamed for the May 2010 ‘Flash Crash’ on Wall Street when the Dow Jones index plunged about 900 points, or 9pc, only to recover those losses within minutes.

Fingers were pointed at the practice again last week when Wall Street traded up and down and within a range of 2,500 points in one unprecedented trading session.

Powerful computers at securities firms around the world enable high-frequency traders to transmit millions of orders at lightning speed, reaping billions seemingly at everyone else’s expense.

Critics say they damage markets and certainly hurt ordinary investors