The world's leading finance ministers and central bankers concluded their meeting in Mexico city yesterday — a gathering that was overshadowed by Europe's debt crisis, its Eurozone travails and how the rest of the world should provide liquidity to the International Monetary Fund (IMF).
In the past 10 days, Greece's politicians have finally accepted a severe austerity package that will get their huge debt levels under control, setting the stage for the troika of the European Union, the European Central Bank and the IMF to provide a further €130 billion (Dh642 billion) bailout to prevent Athens from defaulting.
Markets have largely remained calm in the face of the Greek crisis. That calm is welcome news for investors, both institutional and personal alike, as it has removed the roller-coaster effect on indices.
But it has also increased the pressure on finance ministers of the G20: How will they handle the crisis and its fallout? The financial heavyweights of the US, Canada and Japan have rightly put pressure on the Eurozone members, demanded a stronger firewall to contain the debt contagion within the Eurozone itself.
If the euro fails, collapses or sees some member nations leave the monetary union, any fallout needs to be limited within the Eurozone itself. Already, over the past 30 months, world bond markets have been undercut and rattled by the prospect of sovereign default within the 17 countries who subscribe to the euro.
Until such a time as the European Central Bank has the ability to underwrite the euro with European-ised bonds, rather than relying on the individual members to secure their own bonds, the only logical way forward is for the 17-member bloc to prop up its currency, not with the temporary European Financial Stability Facility but with the permanent European Stability Mechanism of €750 billion. That's the only way to build a realistic firewall around the euro.
