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World Bank: Second financial crisis possible

(People's Daily)

16:49, January 20, 2012

Edited and translated by People's Daily Online

People’s Daily recently interviewed Justin Yifu Lin, Chief Economist and Senior Vice President of the World Bank, and Hans Timmer, Director of the World Bank's Development Prospects Group, in the bank’s Beijing office over the future of the world economy.

Q: Will Europe fall into a financial crisis again?

A: The rating agency Standard & Poor's has successively downgraded the credit rating of nine countries in the euro zone like France, the debt risks of the euro zone are far from stopping, and the economic recession speed of the countries with heavy debts like Greece exceeds expectations.

Europe has obviously been trapped in an economic recession. The economy of the euro zone that is deeply trapped in the sovereign debt crisis has entered the recession at the fourth quarter last year, which has lasted to the present day.

Countries in the euro zone has employed a series of measures to tackle the debt crisis, but the risks for a larger capital market freeze still exist, and the possibility for a more extensive financial crisis involving banks and other financial agencies can’t be excluded.

The report estimates that the economic growth rate of countries with high incomes is 1.4 percent in 2012. The economies of countries in the euro zone will decline by 0.3 percent. Currently, the economic situation of European countries is still in control, but if the crisis expands and the market refuses to finance for more European economic entities, the result might be worse and the situation of each European country will continue to deteriorate, and the second global financial crisis will become a reality.

There’s a great possibility for a second financial crisis in Europe. Once the crisis explodes, the duration would surpass the situation from 2008 to 2009, because these European countries have no fiscal or monetary resources to save the banking system. Whatever the trend of global economy is in the upcoming two years, the undoubted point is that the economic growth of countries with high incomes, including countries in the euro zone, the United States and Japan, will continue to be weak.

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