Sovereign debt "most significant“ global risk: WEF
16 January 2010
London: Even as the tremors from Dubai World's debt default are just beginning to subside comes a report from the World Economic Forum (WEF) that sovereign debt default is the most significant amongst all the global economic risks in the world today. The global risk report comes just two weeks ahead of the annual world leaders meet at Davos in Switzerland.
Unsustainable debt levels in nations around the world could lead to "full-fledged sovereign debt crises" beginning this year, the World Economic Forum said Thursday.
The report listed sovereign debt as amongst the "most significant'' of the ''underlying global risks" facing the world economy.
"In reaction to the financial crisis, many countries have put themselves at risk of overextending their fiscal positions and being burdened with extremely high levels of debt," said Daniel Hofmann, the chief economist of Zurich Financial Services, and one of the authors of the report. "This could put upward pressure on real interest rates, rein back growth and lead to protracted high levels of unemployment."
Pointing out that government debt in many advanced economies has been higher only during periods of war, the report expresses its apprehension that politicians in the US and elsewhere lacked the resolve to cut spending and raise taxes.
In their attempts to bail out the financial system, the world's biggest economies went deep into the red last year even as they pumped billions into the economy. Though the effort may have averted an economic meltdown, it has created mountains of debt.