World Bank president Robert Zoellick said on Tuesday that European governments have to restructure their economies to restore the confidence of markets.
Zoellick said the debt crisis in Europe and the political quarrel in Washington over the US government debt level had "unleashed a wave of worry and uncertainty about the global economy."
He said the global economy has "moved into a new danger zone." Zoellick called for national governments to seek long-term debt curbs to solve the current sovereign debt crises in Europe and the US, but said it was too early for special action by the Group of 20 nations.
Zoellick also said it was time to push a free trade agenda, warning against rising protectionism as nations seek to solve their debt crisis.
"This is really at a stage where you still have sovereign governments having to make decisions in Europe," said Zoellick. "It really is going to be the responsibility of each of those sovereign entities to make the calls on how they are going to face not only the short-term challenges, often assisted by their central banks, but also go to the medium and long term.
Euro zone policymakers have been battling to contain a debt crisis that threatens to enter a dangerous new phase by engulfing larger nations on the region's periphery, with the European Central Bank (ECB) stepping in last week to buy Italian and Spanish bonds in a bid to calm nervous markets. But the idea of so-called "Eurobonds" has been fiercely opposed by Berlin, which is fearful such a step would push up German borrowing costs and reduce incentives for weaker euro zone members like Greece to reform their economies.
(Inputs from AP and Reuters)