World Trade Organization head Pascal Lamy said bank bailouts are threatening free trade by further reducing direct foreign investment, which is already forecast to fall 50 percent this year.
“There is a danger that the finance industry will be on the side of the forces of de-globalization,” Lamy told the Financial Times.
Lamy said he plans to urge government officials at this week’s Group of Eight summit meeting to resist growing pressures for protectionism.
“I am convinced the worst is yet to come,” Lamy said. “The real stress test is for the future when the shrinking of economies translates into unemployment and social hardship and that translates into a political reaction that could influence trade policy.
“The toolbox for protection is a wide one,” the WTO chief said.
Lamy also stressed the need “to keep trade open” in light of his organization’s forecast for a 10 percent decline in global trade volumes this year.
European Central Bank President Jean-Claude Trichet said economic policy without global coordination will allow the imbalances that led to the financial crisis to persist, Bloomberg reported.
“There is a very big danger that major countries internalize their problems,” Trichet said at an economic conference in France. “If we return to a picture of internal and external deficits that led to this crisis, we’ll have the recipe for a new crisis.”
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