PLAYING WITH FIRE; IMF Chief Warns Failure to Get Immediate Grip on Greek Crisis Threatens the Global Economy
Byline: James Chapman Political Editor
DESPERATE international efforts to save Greece from bankruptcy were under way last night as fears grew that the country's economic crisis threatened the 'whole world economy'.
Experts said it appeared to be a question of if, not when, Greece defaults on its massive debts, sending shockwaves across Europe.
Bank losses across the Continent would be enormous, and there is mounting concern that Portugal and Ireland would then be hit by a 'domino effect' as international markets turned on other debt-laden nations.
Some economists believe the euro could disintegrate as a single currency, causing unprecedented turmoil.
Last night the International Monetary Fund issued an extraordinary warning to debt-laden nations, warning them they were 'playing with fire' unless they took immediate steps to reduce their budget deficits.
The IMF said a lack of political leadership in dealing with the debt crisis in countries including the United States could create major financial volatility in coming months.
Jose Vinals, director of the IMF's monetary and capital markets department, said: 'You cannot afford to have a world economy where these important decisions are postponed because you're really playing with fire.
'We have now entered very clearly into a new phase which is, I would say, the political phase of the crisis.'
Another giant bailout for Greece appears inevitable to try to stave off disaster, though there are doubts about whether the country is sufficiently politically stable to agree to austerity measures attached to it.
Germany and France set aside differences over how to respond, insisting last night that a new rescue package for Greece must be agreed as soon as possible.
In a sign of the increasing degree of international concern, and China's emergence as the coming economic superpower, Beijing weighed in with a promise of help.
It said it had a vital interest in countries across Europe overcoming their debt woes and was increasing its holdings of euro debt, but gave no figures or timeframe.
'Whether the European economy can recover and whether some European economies can overcome their hardships and escape crisis, is vitally important for us,' vice foreign minister Fu Ying said.
German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks in Berlin after a public dispute over whether private investors, rather than taxpayers, should be forced to assume a greater burden to resolve the crisis.
'There is no time to lose,' Mr Sarkozy told reporters with Mrs Merkel at his side. …