Developing world needs euro crisis defence-Zoellick

LONDON, June 16 Sun Jun 17, 2012 4:06am IST

LONDON, June 16 (Reuters) - Developing nations must be ready for a severe global financial crisis should the euro zone fail to cope with its current problems, outgoing World Bank chief Robert Zoellick said in an interview published online on Saturday.

Policymakers and investors are nervously awaiting the outcome of this weekend's Greek election, which could empower radical leftists threatening to tear up the terms of a bailout deal and send shockwaves through financial markets.

Developing countries needed to "prepare for the uncertainty coming out of the euro zone and the wider financial markets", Zoellick told Britain's Observer newspaper.

"It will be better if they can avoid piling up short-term debts that can come due in volatile periods and look to the fundamentals of future growth - infrastructure and human capital," he said.

The World Bank had been increasing its lending to support Bulgaria's banking system - one of the most exposed to Greece - and acting to prevent a credit crunch in southeast Europe, the paper reported Zoellick as saying.

The bank was also taking unspecified measures to protect countries in north Africa that were vulnerable to Europe's debt crisis and trade finance facilities were being strengthened for francophone west Africa, the newspaper added.

"Uncertainty in markets is now starting to increase costs for developing countries," Zoellick said. "The ripple effects are making everybody's life harder."

In a reference to tensions in the euro zone over Greece's future, Zoellick said: "Europe may be able to muddle through but the risk is rising. There could be a Lehmans moment if things are not properly handled."

The bankruptcy of U.S. bank Lehman Brothers in September 2008 triggered a global financial slump that indebted western nations are still struggling to recover from. (Reporting by Tim Castle; editing by Andrew Roche)

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