Europe’s government debt crisis threatens to undermine the confidence of consumers and investors, which would further dampen already weak economic growth, Zoellick said.
“I don’t believe the US and the world will go into a double-dip, but there is a high degree of uncertainty,” he told reporters in Singapore.
“Events in the eurozone can have ripple effects all around the world, not only in terms of financial markets but also confidence, whether it be consumers or businesses.”
Zoellick said European countries may need to deepen fiscal integration – implying governments should sacrifice some control over their budgets so spending policies can be coordinated among countries using the euro.
He said recent government-bond purchases by the European Central Bank have provided temporary monetary liquidity to markets.
“The policies that have been pursued by the EU up to now can buy time, but parliaments and the public have to come to terms with fundamental questions,” Zoellick said. “One direction is to deepen the fiscal union.”
Singapore Finance Minister Tharman Shanmugaratnam, who is also chairman of the International Monetary Fund’s policy advisory committee, warned that the EU must solve the structural differences of its members rather than simply react to each new crisis.
“We’ve now reached a critical juncture where further postponement of solutions could lead to the possibility of an outcome that Europe wouldn’t like to contemplate, with very large costs to its citizens,” Tharman said