The warning comes on the eve of a meeting European leaders and representatives of the BRIC economies - Brazil, Russia, India and China in Washington and follows rumours last week that China had considered buying Italian bonds, and a report here on Fin24 that Brazil might contribute to bailout funds.
The Brazilian offer does appear to have some basis in truth. The website reports that "by floating the proposal first in the news media, Brazilian officials have ensured themselves maximum exposure despite growing evidence that the idea may not get support from their BRICs partners."
However it notes that the money is largely symbolic and insignificant compared to Europe's financing needs. Brazil is not making its $352bn in foreign reserves available for European bond purchases but is relying on a sovereign wealth fund that as of August totalled only about $9bn.
Hence Zoellick's call for realism.
"I have been cautioning people not to look for the panacea. A co-operative international response to Europe's crisis is useful and it helps that the International Monetary Fund and World Bank can draw on capital from cash-rich countries. But the idea that you are going to have the Chinese come with a bag of gold and bail everybody out of this problem, I wouldn't hold my breath," he said.
In addition the emerging markets might need the money. Indeed since their ‘emergence' these markets have periodically faced the risk of being undermined themselves by big capital outflows and a general global downturn could see that happen.
Ft.com reports that the stress tests conducted by the IMF suggest that Asian equity markets could see capital out flows reach $21.8bn due to uncertainly in the growth outlook. If this was combined with a drop in growth expectations and a rise in global risk, the outflows could reach $38.3bn.
It could also see $13.7bn flow from Latin American equity markets and $8.2bn from emerging Europe, Middle East and Africa. The report says that emerging bond markets could also be affected.... Read More>>
