The G20 summit was hijacked by the eurozone crisis before the gathering had even begun.
Greece’s shock decision to hold a referendum on its latest bailout deal forced Europe’s leaders into action, summoning Greek prime minister George Papandreou to Cannes last night for a dressing down.
No more bail out cash, they told him, until Greeks vote yes in the referendum.
Papandreou agreed to bring the vote forward to early December. But he also made clear that what was at stake was Greece’s membership in the eurozone.
The prospect of a disorderly default by Athens has already sent global markets into tailspin this week.
It has also made painfully clear that the deal struck last week by European leaders in Brussels has fallen far short. Italy – and even France itself – are proving increasingly vulnerable to contagion.
Leaders, including a normally upbeat IMF managing director Christine Lagarde, struggled last night to put on a brave face, insisting that nothing had changed since the euro bailout deal.
But the high stakes game of poker between Greece and the eurozone threatens a chain reaction of bank and sovereign defaults that could dwarf the collapse of Lehman Brothers – and send the global economy into a sharp downward spiral.
The main task now facing leaders in Cannes is to build a firewall that’s big enough to stop contagion spreading throughout the Eurozone.
While the focus so far has been on beefing up the European bail-out fund, many are saying the only option now left is for leaders in Cannes to boost the IMF’s lending power.
More resources are needed – and now. Where they come from will be up to leaders in Cannes to decide over the next two days.
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