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EUROPE'S DEBT MAY HIT DEVELOPING COUNTRIES

By NBF News
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Developing countries will suffer if Europe's governments fail to deal with their debt problems, the World Bank's Chief Economist, Mr. Justin Yifu Lin, said on Monday.

Despite a record bail-out package, fears remain that Greece's debt woes will spread to other euro zone nations, damage the global financial system and strangle worldwide economic growth.

'We certainly hope this crisis can be resolved soon because the downturn in the European countries will be bad for the developing countries, and could constrain growth,' Yifu Lin told Reuters on the sidelines of a seminar in Stockholm.

Chinese Premier, Mr. Wen Jiabao, warned earlier on Monday that global economic growth remained vulnerable to sovereign debt risks and the possibility of a second downturn .

Asked if there was a risk of a double-dip recession in the global economy, Lin said, 'I hope not.'

Last week, the Organisation for Economic Cooperation and Development sharply raised its forecast for global growth this year and next, thanks mainly to strength in Asia.

It said developed nations' debt problems were one of the main threats to the global economy.

Greece this month received the biggest bail-out in financial history, with the International Monetary Fund – the World Bank's sister organisation – and the European Union pledging 110 billion euros in 2010-2013 to save the country from default.

At a seminar on development challenges in a post-crisis world, Lin said the bailout package was 'decisive' and would help stabilise markets, but that there was still a risk that Europe's problems could spill over to the rest of the world and the developing world was particularly vulnerable.

Lin, who joined the World Bank in 2008 from the China Center for Economic Research at Peking University, said he hoped government commitments to tackle deficits would help limit any contagion.

'We are in a very integrated world. Anything happening in Europe will affect the rest of the world. And anything happening in the rest of the world will also affect Europe,' he said.