Emerging economies fight back at the G20

Paris, noon, Friday 14 October.

Forget the euro crisis for a minute – there is a much larger canvas being unveiled here at the G20 finance minister’s meeting in Paris.

The Empires are striking back.

We had the extraordinary falling out between the US and Germany last month over the euro bazooka: US Treasury Secretary Tim Geithner called for a leveraged European Financial Stability Facility (EFSF), a multiple-trillion euro-Death Star that would be so toweringly frightening, that the markets would run away from their attacks on the eurozone.

Well here in Paris something remarkable and historic is brewing. The emerging economies appear so fed up with the damage done to global economic confidence by the festering euro crisis, that they might just be about to take matters into their own hands.

Already today the South African finance minister has said the IMF and eurozone bailout facility “doesn’t have sufficient resources at this time”.  Russia’s deputy finance minister also said that the EFSF “does not have sufficient funds”.

Alan Beattie’s important story in this morning’s Financial Times (FT) suggested that BRIC nations (Brazil, Russia, India and China) were ready to set up a separate intervention fund through the IMF –  a global economy bazooka, to be used to kill the euro crisis. There are various technical ways of doing this which minimise the potential losses for the lenders.

If this happens, it would be an amazing turn in global economic history. The Eastern creditor-exporters bailing out the Western debtor-importers. It’s surely going to look pretty embarrassing for Germany. Those nations would expect to start the long process of taking control of the IMF.

As for Britain, we seem to be out of the loop and unsure what to do. David Cameron called for a “big bazooka” in his FT interview this week. It might be coming sooner than expected through the IMF.

So will we contribute? For the euro rescue? And if we do, can we really contribute to a world economy-saving bazooka, but definitely not do anything analogous for the British economy?

But that is a parochial matter. If things pan out as I describe above, this weekend and next month at the Cannes G20 leaders’ summit, that would be remarkable. The bigger picture here is that the G20 – from China and the US, to the US and Germany, to the BRICs and the rest – is also in danger of fracturing too.

The G20 was invented in the middle of the 2008 crisis as a specific response to it. Then the panic around Lehman’s brought all corners of the globe together. Three years on the crisis is every bit as acute. But we can’t be sure that the response will be so concerted. The next 24 hours in Paris will go along way to showing which way we are heading.

Follow Faisal Islam on twitter: @faisalislam