Japan and China have made it clear that they will be very cautious about putting more money into the International Monetary Fund (IMF) to help it protect the global economy from the European debt crises, among other threats. They are right to be wary. Ahead of their meeting this month, the Group of Twenty (G20) major economies have insisted that Europe needs to sort out its financial problems, before they will provide any additional support through the IMF.
But even with the latest boost to the Eurozone financial stability funds, the markets have made it clear that they are not convinced the authorities have enough resources to deal with any widespread debt crises. Spain's borrowing costs, for example, have surged because of concerns about its weak economy and ability to pay its debts.
Until the markets are convinced that the Eurozone authorities have the financial resources — and political will — to ensure that struggling member states will not be overwhelmed by their debt, the markets will remain dangerously volatile. European countries must reduce spending on social benefits and increase their investment in economic infrastructure and human resources. While the pain for Europe's people may be sharp at first, this will lay the foundation for the future economic growth it needs to secure its financial health.
G20 countries have a vested interest in helping avoid the international economic turmoil that will come with a renewed financial crisis in the Eurozone. It remains a vital market for their exports, which have been responsible for much of their economic growth in recent decades. But, they cannot afford to prop up the European financial system.
Global economic and political power is rising in the East and the South. Developing countries need to boost trade with each other, by opening their markets, and strengthen their own financial resources so that they can continue to grow despite the European crises.
