Gloomier and gloomier

Economist
September 26, 2011

Two significant messages emerged from the weekend's IMF meetings that are both striking in their own right and which, when set against each other, are deeply disconcerting. On the one hand, journalists seem to be unable to describe the meetings without noting the high level of fear and anxiety among the participants. (The Financial Times' Wolfgang Münchau closes his column today by saying, "I have never seen Europe's policymakers as scared as I saw them in Washington last week.") Along those lines, leaders came away from the meetings promising bold action by early November, including agreements on steps to recapitalise banks and increase the capacity of the European Financial Stability Facility. The message seems to be that officials have been scared into a recognition of the severity of the world's problems and are now prepared to act.

Yet the day's headlines carry another message: the euro zone is riven by conflict and unable to agree on the most basic of rescue measures. Euro-zone governments are still struggling to put in place an agreement reached in July. Some officials insist that Greece's creditors must take much larger haircuts than those assumed in that deal, while Greek leaders continue to argue that they will not default. Observers are biting their nails over looming parliamentary votes on the plan to increase the EFSF, even as it becomes clear that a rise to €440 billion isn't sufficient. On the one hand, it's as clear as ever that the euro zone needs a massive, ambitious policy to avoid a catastrophic financial scenario. And on the other, it seems ever less likely that the euro zone's leaders can agree on such a policy and muster the domestic political support to ratify and implement it. If Europe simply can't do what it needs to do, that leaves the euro zone, and the world, facing a very dark economic reality.

More