World Bank head warns of "new danger zone" for global markets

"What has happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that have led many market participants to lose confidence in the economic leadership of some of the key countries. What we've seen is that confidence is a fragile sort of element of how any market economy works. And I think that those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. And I don't say those words lightly," he said.Zoellick said the process of dealing with the sovereign debt problem and some of the competitive issues in the euro zone tended to be done "a day late," leaving markets worried that authorities may not be ahead of the problem or moving in the right direction.

"The process with dealing with the sovereign debt, but more than the sovereign debt some of the competitive issues have been done a day late and a euro short I guess I'd say. And so it's natural if countries have to come together in that process but, that it might not be what you really need when you run into a major financial or fiscal problem, which is to get ahead of it, to sort of jump ahead and create a sense of markets that the economic leadership is not only on top of the problem but moving in the right direction. But I think that has sort of accumulated and so we're kind of moving from drama to trauma for a lot of the euro zone countries," he said.

Zoellick said efforts to cut U.S. government spending have so far been focused on discretionary spending as opposed to the entitlement programmes such as social security.

He also said the global economy was going through a multi-speed recovery, with developing countries now the source of growth and opportunity.