WASHINGTON—The European debt crisis could weigh on the world economy for years, forcing policy makers to rethink their approaches to restoring growth and boosting job creation, the World Bank's new chief economist said in an interview Monday.
The global economy is "is not doing well," said Kaushik Basu, a former top Indian government official who on Monday became the bank's top economist.
"The difficult phase will live with us for a while." Europe's debt crisis is hurting demand on the Continent and hitting exports from developing countries.
The market turmoil has also led trade financing to dry up, adding another layer of trouble to emerging-market economies that rely so heavily on selling their products abroad, Mr. Basu said.
"Most people don't realize how much of trade is made possible by the oiling that is done by the financial system," he said. "You need trade credit.
It's critical.Mr. Basu, who is on leave from Cornell University, spent much of the past three years as chief economic adviser to the Indian government.
Working there during what he called a "tumultuous period" for the country gave him a front-row seat to the problems of developing economies, which are the primary focus of the World Bank.
Countries such as Brazil, China and India are addressing homegrown problems in their domestic economies just as their overseas markets weaken, Mr. Basu said.
"When you do that in a rush, yes, you're making some blunders as well." Europe's crisis, meanwhile, is exposing fault lines in the construction of the euro currency system, Mr. Basu said. "It's a gigantic experiment. I think it's a wonderful experiment.
We will have to bridge those fault lines and cure them. But we will have to live with problems for a while."
The global upheaval of recent years should force policy makers to re-evaluate how their policies affect other countries."
"The global economy is becoming one economy," Mr. Basu said. "We have to do a lot of rethinking. Globalization has come upon us more rapidly than we had anticipated."
The World Bank's major annual development report, released Monday night, found that 200 million people are unemployed and actively seeking work across the globe.
About 620 million youth—most of them women—are neither working nor looking for work. Of the more than three billion people working world-wide, almost half are farmers or self-employed.
The report highlights the importance of jobs as a driver for development around the world.
The forces that have unleashed cheap labor, pulling people out of poverty in developing countries, have created new tensions in advanced economies and "challenges that are absolutely huge," Mr. Basu said.
"One must not diminish the problems of industrialized-country labor as well, where they are suddenly coming under competition from a segment that earlier they did not have to think about," he said.
"That restructuring whereby industrialized country labor has to be employed in different ways needs a lot of thinking."
wsj.com
The global economy is "is not doing well," said Kaushik Basu, a former top Indian government official who on Monday became the bank's top economist.
"The difficult phase will live with us for a while." Europe's debt crisis is hurting demand on the Continent and hitting exports from developing countries.
The market turmoil has also led trade financing to dry up, adding another layer of trouble to emerging-market economies that rely so heavily on selling their products abroad, Mr. Basu said.
"Most people don't realize how much of trade is made possible by the oiling that is done by the financial system," he said. "You need trade credit.
It's critical.Mr. Basu, who is on leave from Cornell University, spent much of the past three years as chief economic adviser to the Indian government.
Working there during what he called a "tumultuous period" for the country gave him a front-row seat to the problems of developing economies, which are the primary focus of the World Bank.
Countries such as Brazil, China and India are addressing homegrown problems in their domestic economies just as their overseas markets weaken, Mr. Basu said.
"When you do that in a rush, yes, you're making some blunders as well." Europe's crisis, meanwhile, is exposing fault lines in the construction of the euro currency system, Mr. Basu said. "It's a gigantic experiment. I think it's a wonderful experiment.
We will have to bridge those fault lines and cure them. But we will have to live with problems for a while."
The global upheaval of recent years should force policy makers to re-evaluate how their policies affect other countries."
"The global economy is becoming one economy," Mr. Basu said. "We have to do a lot of rethinking. Globalization has come upon us more rapidly than we had anticipated."
The World Bank's major annual development report, released Monday night, found that 200 million people are unemployed and actively seeking work across the globe.
About 620 million youth—most of them women—are neither working nor looking for work. Of the more than three billion people working world-wide, almost half are farmers or self-employed.
The report highlights the importance of jobs as a driver for development around the world.
The forces that have unleashed cheap labor, pulling people out of poverty in developing countries, have created new tensions in advanced economies and "challenges that are absolutely huge," Mr. Basu said.
"One must not diminish the problems of industrialized-country labor as well, where they are suddenly coming under competition from a segment that earlier they did not have to think about," he said.
"That restructuring whereby industrialized country labor has to be employed in different ways needs a lot of thinking."
wsj.com
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