Robert Zoellick's last day as World Bank president was Friday, when he was succeeded by Dartmouth College president Jim Yong Kim. The Washington Post interviewed Zoellick last week in his office at the bank's headquarters, where moving boxes were packed and luggage — a gift from his staff — was sitting by the door.
Start with Europe. You were critical of Spain and felt they had mishandled the announcement of their bank recapitalization. How would you have handled it differently?
The key point was that 100 billion euros is still a big sum of money. Even a rich continent does not have too many of those bullets to fire, so when you fire the bullet, you want it to hit the target. It missed the target because there was a large amount of uncertainty about which fund it was coming from, what the seniority of the position is, and, fundamentally, is it inserting capital or just making a big loan? What the banks need, like the U.S. banks in 2008, is a capital infusion. So the European Union worked its way to bypass some of their procedures to arrange 100 billion euros. But because those questions were left unanswered, the market reacted negatively. So, the point in that case is that you have to try to get ahead of the problem and not only make the tough decisions but execute in a coherent way.
Why do you think this crisis has proved so difficult to resolve — so persistent, despite all the steps the eurozone has taken over the last two years?
The market situation is tricky. Expectations are very low. That could be good news, because if something positive happens, you could get a positive reaction. Second, even though market expectations are low, behind that is an assumption that when the Germans say, "We won't let it fail," that they mean it, so that, ultimately, Europe will save the euro. The biggest risk is of miscalculation. So as Germany deals with the problem incrementally or plays brinksmanship or negotiates, that the snowball starts getting so big going down the hill that you can't stop it at the last minute.
… The other variable is France, both politically and economically. Historically, France and Germany have been the drivers of European integration. So if one wanted to look for something that could help, (French President Francois) Hollande is much more of a Europeanist than (former President Nicolas) Sarkozy or (former President Jacques) Chirac. If he were willing to take some steps … that could provide some opportunity to work out with the Germans a compromise. And even if they have not executed it all, that would deal with some of the confidence problems in markets. But, Hollande is walking a very thin line because some of his campaign rhetoric, if implemented, could make France part of the problem, not part of the solution. So I think this remains a very fragile period. The proposals … put out are an effort to come up with a coherent approach. That is the good news.
The bad news is the key countries, particularly Germany, are not yet ready to embrace them. From the perspective of the rest of the world, Europe is now a troubled place that has negative economic effects on some markets, particularly the Balkans and North Africa. And it remains a … downside risk if things slide out of control.
Given the experience of the last couple of years, do you agree with the premise that Germany will allow this to be fixed, or do you have any skepticism, given the way they have spooled this out so slowly?
I take the German leaders at their word. I think they are sincere that their object is not to let it fail. But I am worried that the process could lead to brinksmanship and miscalculation, and it could slip out of their control.
On the U.S. fiscal position, how do you compare the debate here and Obama's performance in it with what is under way in Europe? They may not have solved their problem, but they have been blunt about these issues — raising retirement ages, for example.
There was a missed opportunity in early 2011 when (the) Simpson, Bowles, Domenici, Rivlin (deficit-reduction plans) offered a pathway that you were starting to build some significant bipartisan support. And I don't mean to suggest everybody was on board. I can start to feel that you could bring a critical mass around a package. But it won't happen unless the president of the United States does it. So in that sense, the United States missed a moment, and if we had done something then, frankly, we would have had more standing internationally to help with Europe now.
That shows the old notion that the United States is still a key player internationally, but to be a key player, we have to get our own foundation in place at home. It is not just the budget. You could close the budget gap by raising taxes. It also depends on the regulatory, the competition, how you bring in the private sector.
… I find it interesting that in Chongqing, China … we are working with them to monetize toll roads. But in many states, they are unwilling. … So it is not just budget-balancing but how you create incentives for private-sector investment. Around the world there is a huge interest in education, skills training, workforce development. And there is a lot of experimentation going on about private-sector players that provide that service. In this country, it has all been locked down to student loans and who is ripping things off, as opposed to seeing what models work.
Is it too broad a brush to say you feel the developing world is intellectually a bit more flexible and innovative when it comes to some of these public administration issues?
The developing world is more pragmatic about using what works. It does not mean that they have got it all right themselves. Their income levels are still lower. Their productivity levels are still lower. So they have their own challenges. China has had a very successful growth model for 30 years. It won't carry them for the next 30 years. They are going to have to change. … I am not saying we should look to the developing world for all the models, because our model is still superior. But we should have some of the pragmatism that the developing world is having.