So the G20 summit has duly failed to deliver a meaningful plan for solving the Eurozone crisis. Or has it?

To the consternation of many observers the best that could be managed was a communique vaguely promising that further IMF resources would be made available for the Eurozone. The summit had been billed by George Osborne as the last chance to save the Euro, and expectations were high. This muted outcome, played out against the tragi-comedy of the Greek on-off referendum and their no-confidence motion, will no doubt have its repercussions in the Financial Markets this week.

The irony is that finally the Eurozone may be inching its way towards the right answer – at least temporarily. It has been apparent from day one that there was not enough money in the Eurozone to solve its 7 trillion sovereign debt problem. The attempts to impose impossible austerity programmes on beleaguered states, or partition debt between Greece and its creditors, or announce bailout funds that don’t exist, have all been the equivalent of shuffling the deckchairs on the Titanic as the Eurozone sank. The only European-based solutions have been largely impossible politically – Germany to write a blank cheque for a Euro Bond; full monetary union; indiscriminate printing of money by the ECB; or a dismantling of the Euro. It has been apparent for some time that the solution to this problem needed to come from outside Europe, where there is genuine money available to address it.

Attempts to solicit cash directly from the likes of China are unlikely to work – from a negotiating point of view China holds all the Aces. However, the idea of the IMF providing financial support seems far more plausible. The only problem is that this kind of solution will take a long time to negotiate. At the G20 summit, 19 nations were represented, plus the 17 Eurozone countries, plus the remaining European Union countries. It is to everybody’s credit that consensual negotiations are proceeding, however, these kind of negotiations are time consuming and delicate. Normal negotiating practice is that there should never be more than 8 parties involved for a productive outcome – in this case there
will be dozens of interested parties.

So, the Eurozone countries may have finally stumbled on the right answer, but a negotiated IMF solution may take far longer to arrive at than the financial markets will permit.

Furthermore, it has to be acknowledged that whatever the outcome of attempts to defuse this current crisis through negotiation, this is a problem that is not going to go away – not for a number of years. For years Eurozone countries (and Britain) have been spending far more than they earn. This imbalance is only likely to continue as their population’s age and need more health care. At present rates, by 2050 the average Eurozone country is expected to be spending 25% of its GDP on pensions and health and 3 times its GDP on public sector services. This is unsustainable. The Eurozone countries will need a root-and-branch effort to reduce expenditure and/or increase revenues over a period of many years.

The move to negotiate some kind of bail-out with the IMF is probably the right answer, and may in due course deliver a solution to the current crisis, but it will not solve the underlying problem of Eurozone debt.