The fragility of the global economy is exposed today as the G20 summit in Cannes looks increasingly likely to fail. Markets are already assuming the worst, and there are reports that the US is warning it will stop giving money to the International Monetary Fund (IMF).
Added to this are suggestions that Italy’s financial crisis could be about to blow up, and Greece could be set to leave the euro.
In a sign of politicians’ recognition of the growing crisis, French president Nicolas Sarkozy has warned that the euro will be defended at all costs. It might be that this means accepting a managed Greek withdrawal in order to shore up the rest of the eurozone, but there are signs that the Italian economy is now moving from ‘possible’ to ‘probable’ disaster.
France and Germany have already reiterated their determination to defend the eurozone, but it remains to be seen whether they have the stomach to commit the resources that would be necessary to save Italy.
Few G20 members have so far committed further funding to the European Financial Stability Fund (EFSF), which is seen as crucial to the stability of the eurozone. The EFSF has been throwing money at troubles economies this year, but with little evidence of success so far.
Warnings of a ‘collapse of Europe’ might seem a little dramatic, but it’s nevertheless clear that the modern European system is being properly tested for the first time and is being found to have serious problems. France and Germany are leading the charge to strengthen the EFSF, but many of the ‘developing’ nations aren’t so far buying into the Franco-German narrative of increasing the bailout fund to safeguard the whole project.