Leaders of the world's largest economies, the G20 nations, were drowning not waving at their seaside summit in Los Cabos, Mexico last night, as they struggled to find any kind of coherent consensus on what to do about the eurozone crisis.
The debate in Los Cabos came against a chaotic backdrop in two of the eurozone's most troubled corners.
In Madrid, despite hopes that the Greek election results might bring some stability to the financial markets, the brief positive response rapidly gave way to more fearful selling yesterday as borrowing costs shot upwards. Spanish 10-year bond yields hit their highest levels since the foundation of the single currency at one point in trading, touching 7.28 per cent.
In Athens, the winner of Sunday's election, the New Democracy Party, was embarking on what is expected to be a tremulous effort to form a government that can begin negotiating with the European central authorities on the terms of new support that in turn will allow it remain in the eurozone.
But at the G20 summit, President Barack Obama was trying to knock heads about the seriousness of the problem that is now threatening his re-election. Angela Merkel, the German Chancellor, did little to help, saying upon her arrival that she still expects the new Greek government to stick to early austerity commitments previously made by Athens. And David Cameron blamed "muddle-headed thinking" on the part of some European governments for the fever now gripping the monetary union. He warned that the eurozone faced years of "perpetual stagnation" or even a complete break-up if tough decisions were not taken.
This morning the G20 will issue a communiqué suggesting that Europe's leaders are now ready to "take all necessary policy measures to safeguard the integrity and stability of the euro area". But there was scant sign of anyone agreeing on what those should be. The G20 will also call for breaking the "feedback loop between sovereigns and bank", implying that a first step must be the creation of a banking union.
Mr Cameron last night spoke of what he said was the inevitable logic of setting up a banking union, which would mean a central deposit guarantee funds and central regulatory authority given to the European Central Bank. "If banks in one part of the single currency are in trouble then it's right that other parts of the union should protect depositors to protect the currency as a whole."
There was nothing to suggest the biggest player of all in the future of Europe – the government of Ms Merkel – was anywhere near conceding that a banking union is viable. She came to Mexico instead with a variety of alternative proposals for greater financial integration and even a transfer of new powers to the European Union.
None of this fractiousness will encourage the leader of the New Democracy Party, Antonis Samaras, who said he wants to form "a national salvation government" with as many parties as possible. His narrow victory came after a hard-fought election that left Greeks more polarised than ever.
As his first step towards creating a coalition, Mr Samaras met yesterday with Evangelos Venizelos, the leader of the socialist party Pasok, the ruling party of Greece until late last year which has since seen many of its supporters defect to Syriza. Pasok, whether it joins a new government or simply supports it in parliament, will need to show that it is an effective opponent of the EU austerity measures if it wants to avoid further defections to the left.
Some may not welcome the frank interventions of Mr Cameron, but he made no apology for it, warning that Britain has as much to lose from European stagnation as anyone else even if it is not part of the monetary union. "There was too much optimism at the outset about the economic fundamentals in the periphery of the eurozone," he said. "If the eurozone is to stay together then it has to make at least some of these difficult decisions.
"The alternatives to action that creates a more coherent eurozone are either a perpetual stagnation from a eurozone crisis that is never resolved... or a break-up."
Greek election: World reaction
Angela Merkel "The important thing is that the new government sticks with the commitments that have been made. There can be no loosening on the reform steps."
Mario Monti "This allows us to have a more serene vision for the future of the European Union and for the eurozone."
David Cameron "The outcome of the Greek election looks clear in terms of a commitment to stay in the eurozone and to accept the terms of the memorandum. But I think those parties that want that to happen can't afford to delay and position themselves. If you are a Greek political party and want to stay in the eurozone and accept the consequences that follow, you have got to get on with it and help form a government."Reuse content