Eurozone called for confidence despite gloom

TIANJIN - Policy makers and economists predicted on Tuesday that the sovereign debt crisis will continue to cast a shadow over the European economy, but called for confidence in the euro.

The eurozone crisis is stabilizing and risks are decreasing in the region's fiscal and monetary systems as well as in its financial markets, but the risks to economic growth are rising, International Monetary Fund (IMF) Deputy Managing Director Zhu Min told reporters on the sidelines of the 2012 Summer Davos Forum in north China's Tianjin.

Deterioration in the European economy will have a huge impact on the global economy as Europe is one of the world's largest economies and accounts for one third of value-added exports to Asia, Zhu said.

"We should talk more about the growth side, not the financial side (of the eurozone crisis)," he told a panel discussion during the forum.

In the worst-case scenario, a more disastrous situation in Europe could lead to a 1.5 percent-2 percent growth cut in the United States and a 1 percent-1.5 percent cut in China, as IMF models showed, according to Zhu.

However, he labelled that scenario a "tail risk" and acknowledged that the whole of Europe is seriously moving in the right direction now, though the crisis is not over and there remains a long way to go.

"I don't think the euro will collapse and I advise everyone to have confidence in the currency," Zhu said. The eurozone saw its gross domestic product value shrink 0.2 percent in the second quarter of the year from the previous quarter.

The European Central Bank (ECB) last week unveiled a new bond-buying program that will make open-ended purchases of short-term government bonds to keep borrowing costs down for struggling European countries.

The IMF is ready to participate in the ECB program by helping draw up conditions attached to the program and supervise its implementation, Zhu said.

Speaking at the same session, Danish Prime Minister Helle Thorning-Schmidt predicted a "bleak outlook" for the European economy, though she said she expected the economy to pick up a little speed in 2013.

"Make no mistake, Europe and the euro are still in a crisis, and the situation is far from satisfactory," said Thorning-Schmidt.

Meanwhile, she said, it takes a lot of bold political determination to carry out structural reforms in the countries where they are needed and that Europe has already come very far.

Denmark's prime minister called on the rest of the world to help when Europe shows its first signs of recovery by investing in and trading with the region because it will benefit the world economy as a whole.

Li Daokui, a former advisor to China's central bank, said the eurozone debt crisis will not lead to the breakup of the euro but will instead make the economic and political foundation of the region more solid as the region has no other choices.

He predicted that European nations will eventually achieve further integration through reforms, while urging Europe to adopt a flexible monetary policy and transfer part of southern European nations' fiscal power to the European Union.

"I strongly believe there will be a framework solution plan to the European debt crisis within more than a year," Li told reporters at a seminar.

The Summer Davos Forum, formerly known as the World Economic Forum Annual Meeting of the New Champions, will last from September 11 to September 13 and will be the sixth of its kind held in China.

Themed "Creating the Future Economy", the three-day event will feature interactive programs on issues including the euro crisis, China's future economy and global food security.