Socialist Prime Minister Jose Luis Rodriguez Zapatero has called two exceptional cabinet meetings for Aug. 19 and Aug. 26 to take measures to ensure the country will meet its deficit target this year and boost growth.

 Socialist Prime Minister Jose Luis Rodriguez Zapatero has called two exceptional cabinet meetings for Aug. 19 and Aug. 26 to take measures to ensure the country will meet its deficit target this year and boost growth. The government plans to encourage temporary contracts to help the labor market and modify the taxation calendar for large companies to increase tax receipts by 2.5 billion euros in 2011.

"The fact that Italy is now talking about taking more fundamental growth policies is important, but there will have to be follow-through," said Zoellick, a former U.S. trade representative and deputy secretary of state. "I think Spain under Zapatero has actually moved ahead and that's one reason why Spain has been able to sustain this. But ultimately, if some of the countries such as Greece and Portugal are unable to show the prospects for growth, then the problem will persist."

Zoellick said the U.S. had contributed to the drop in confidence in markets because of the protracted debate in Congress over measures to ensure the country didn't end up with a debt default.

'Sturm und Drang'

"It's not that the United States faces an imminent problem," Zoellick said in his address to the Asia Society. "Frankly, markets are used to the United States playing a key role in the economic system and leadership and so when they saw the 'sturm und drang' in Congress and with the executive, it made them uncertain about, 'well does the United States really know where it's going? Or is it going to get there?'"

Zoellick said while he expects the world to move toward a system of multiple reserve currencies, the U.S. dollar will probably remain the principal one.

Turning to the world's second-largest economy, Zoellick said China's recent inflation numbers may have influenced policy makers to allow appreciation in the yuan to combat price pressures.

"That probably tipped the balance internally, the idea that the currency appreciation is a way that you can counter inflation," Zoellick said. He said an inflation rate in China of 8 percent to 10 percent would be "seen as a very serious problem" and have the potential to disrupt the nation's leadership transition.

China's inflation accelerated to the fastest pace in three years in July, as consumer prices climbed 6.5 percent from a year earlier on surging food costs.

Australian 'Reforms'

Australia's economy, the only one in the developed world to avoid the 2009 global recession, may expand an average 2 percent in 2011, the central bank said Aug. 5, lowering its forecast from a May prediction of 3.25 percent.

"Australia is in a much better position than other developed countries in part because Australia undertook a lot of the structural reforms," Zoellick told reporters. "Whatever the policy decisions, and political decisions in Australia, it's in a better position along with the fact it's continued to pursue an open trade policy and take advantage of its position in the Asia-Pacific."

Formed after World War II to fight poverty, the Washington- based lender to poor countries predicted in June world economic growth would slow to 3.2 percent this year from 3.8 percent last year before accelerating to 3.6 percent in 2012.