Rachel Reeves faced a difficult balancing act as she addressed the Labour faithful in Liverpool today.

Ahead of what many see as a make-or-break budget next month, the chancellor needed “to assure her restive colleagues that she can put the economy in the service of beating the populist right without undermining her reputation for fiscal prudence”, said Joe Mayes on Bloomberg.

Her speech had to be “a mix of pro-growth initiatives, back-to-work support and pledges of fiscal restraint” amid growing alarm that “poll-topping” Reform are successfully exploiting Britain’s seemingly intractable economic problems of high debt, slow growth and low productivity.

What did the commentators say?

The UK’s public finances are, in one sense, “eminently fixable”, said The Economist. While the financial crisis and pandemic have driven up Britain’s net public debt from 25% of GDP in 2005 to 95% today, the “belt-tightening needed to stabilise debts is about 2% of GDP, some of which is already budgeted for”.

“By historical standards, it is not a demanding target” yet the “inability of the political system to grapple with a solvable problem is itself a symptom of decline”.

A series of forecasts released just before this week’s Labour conference have made the chancellor’s task even more challenging. The OECD has forecast for the UK the highest rate of inflation in the G7 this year, and predicted growth to slow to 1% next year, caused by “increased trading costs and uncertainty” and a “tighter fiscal stance”, said Nick Edser at the BBC.

In another “blow” for Reeves, the Office for Budget Responsibility “will substantially reduce its estimates for productivity in the economy”, said David Maddox in The Independent, meaning the chancellor “will need to find even more money to balance the books”. Many economists have warned that Reeves “has not done enough to change the trend on productivity”.

What is required is nothing less than a complete “reset” of the UK economy, Shanker Singham, chair of the Growth Commission, told The Independent’s Maddox. The fault for the current situation is not just down to the current government, he said, but goes back “30 years or so”. Economic growth in that period “has been anaemic”, not only in the UK but “across the G7 more widely, with the exception of the US”.

Pointing to the upwards regulation of the price of energy, the lack of flexibility in labour markets and the UK “persistently failing to take an axe to planning regulations”, Singham concluded that “these countries seem to be hell-bent on doing all the things that damage economic growth, while simultaneously paying lip service to it.”

What next?

The levers available to Reeves to reset the economy are limited, and it’s no surprise that today she confirmed she no longer stands by her pledge last year not to raise taxes. She said the world had changed, “due to a mixture of conflicts, US tariffs and higher borrowing costs”, said Peter Walker in The Guardian.

UK 30-year gilt yields are at multi-decade highs, leaving her “little wriggle-room as she contemplates 2026’s budget”, said Bloomberg’s Mayes. This is “the big issue so many people are fixated with right now”, said Sky News economics editor Ed Conway. It is “very hard to unpick precisely how much” this can be blamed on Liz Truss’ disastrous mini-budget in 2022 and “how much was down to the Bank of England” and its controversial policy of “quantitative tightening” but the sums involved are “staggering”.

There are potential parallels here with “the market panic that followed” Truss’ budget, said The Economist. “The difference between her cavalier leap and today’s cautious drift is a lot smaller than it looks. If Britain cannot budget responsibly by choice, then markets will force it to do so by necessity – thereby damaging the entire economy.”

The International Monetary Fund and the World Bank hosted their annual meetings in Washington this week, on the 80th anniversary of their foundation at the 1944 Bretton Woods Conference in New Hampshire. But the mood was hardly celebratory, said David Lawder on Reuters. Global finance chiefs gathered "amid intense uncertainty over wars in the Middle East and Europe, a flagging Chinese economy and worries that a coin-toss US presidential election could ignite new trade battles".

The IMF's latest world economic outlook was underwhelming, with an unchanged prediction of 3.2% global growth in 2024. The Fund projects it will fade to a "mediocre" 3.1% in five years – "well below its pre-pandemic trend". And the IMF predicts global public debt will, alarmingly, exceed $100 trillion by year-end. "Our forecasts point to an unforgiving combination of low growth and high debt – a difficult future," said IMF chief Kristalina Georgieva.

The mood in Washington was of "fractiousness-just-short-of-crisis", said Alan Beattie in the FT. The Fund and the Bank are "stuck in an underperforming rut" – failing to provide the finance the developing world needs, struggling to address climate change, and (as usual) issuing warnings against "protectionism". It's like "a doctor telling you to eat more healthily and exercise… It's not wrong, but it's not news."

Meanwhile, the shift towards global "multipolarity" was rammed home by the competing "Brics summit", hosted this year by Vladimir Putin in Russia, said Mehreen Khan in The Times. China and India made no secret of where their priorities lie. They sent finance ministers and central bankers to DC, while Xi Jinping and Narendra Modi headed to Kazan – handing Putin a "diplomatic coup". It's testament to the growing power of the Brics group and their interest in developing tools, such as a common currency, to counter "the dollarised financial system".

Still, in Washington, Brics wasn't the real "elephant in the meeting rooms", said David Lawder. A victory for Donald Trump next month could "upend the international economic system with massive new US tariffs and borrowing, and a shift away from climate cooperation". The stakes are high, said the FT – which is "why the Bank and the IMF matter more than ever". After 80 years, "the twins" badly need reform: voting power in both "remains disproportionately in the West's favour, making it harder for the pair to claim to be a truly global voice". But they remain as vital as ever. As a US treasury secretary, Henry Morgenthau Jr, observed in his closing address in 1944, "the wisest and most effective way to protect our national interests is through international cooperation".

"Don't trust anyone over 30" was the rallying cry of the 1960s youth counter-culture movement. Now, 60 years on, anger at unemployment, debt and decades of corruption is fuelling a wave of youth protests in Kenya that have the potential to spread across the continent.

Considered one of East Africa's "more economically developed and democratically stable countries", Kenya has in recent weeks been rocked by a "political crisis that reveals the deep cracks in both sides of that stability", said Vox.

Many are now wondering whether it could herald the start of Africa's long predicted "youth rebellion", said The Sunday Times: "an Arab Spring-style uprising driven more by economic need than a hunger for democracy".

What did the commentators say?

Several economic factors have come together in Kenya, creating the "perfect storm" for mass protests in recent weeks, said Professor X.N. Iraki, a business professor at the University of Nairobi, on The Conversation.

Kenya's Gen Z have "borne the brunt of the country's slow economic growth", leading to higher unemployment rates, reduced income levels, higher levels of debt, and lower living standards overall. While corruption has been a long-standing problem, the figure of the "tenderpreneur" – those who make money by fraudulently getting government tenders and inflating the prices – looms large in Kenya. In addition, there are a high number of "frustrated, educated young people in the country" who, despite being more educated than their parents, are jobless.

Anger over this lack of job opportunities has been one of the "major driving forces" behind the recent disorder in Kenya, said The Sunday Times. The final straw was the government's plans to introduce more taxes – including levies on mobile money transfers and digital products that would have directly affected young people's online activities – to tackle the country’s crippling debts.

This is, however, "not an isolated upheaval", added the paper. "Much of Africa faces a major jobs crisis" driven by what Ladi Balogun, chief executive of Nigeria's First City Monument Bank Group, has called a demographic "ticking time bomb" on the continent.

With 40% of Africa's population under 15 – compared to just 19% in Europe – research suggests that the continent needs to create 18 to 30 million jobs annually through to 2030 to meet this growing demand. At the moment, it is generating only 3 million a year.

Another key factor driving disillusionment among Africa's youth is debt, said the United States Institute of Peace. Kenya is at high risk of debt distress, according to the International Monetary Fund (IMF), and more than a third of its revenues go towards debt interest payments. The recent Finance Bill, which was dropped by President William Ruto on Wednesday following weeks of protests, was supposed to increase government revenue through taxes, satisfying a condition of the IMF loan.

Like many other developing countries, Kenya finds dealing with its debt burden is a vicious cycle that is hard to square, especially when so many young people see an "economic and financial system stacked against them", said Vox. If Kenya doesn't pay it, "the possibility of borrowing in the future will become more difficult in the short term; over time, it could mean more unemployment, more poverty, and overall worse outcomes for Kenyans".

What next?

With close to 30 people dead and the government severely weakened, the youth-led movement in Kenya, which has "little precedence in a country where protests are traditionally elite-led", finds itself at a "crossroads", said The Guardian.

How the "diffuse and leaderless movement", which largely organised via social media, pursues its objectives remains an "open question – and a source of internal debate", said Al Jazeera.

But with Africa set to account for a third of the world's under-25s by 2035 with a median age of just 19, the conditions for further youth-led unrest are only growing.

For many "the answer lies in private-sector growth" said The Sunday Times. This is the "key" to ensuring Africa's demographic surge becomes a "powerful tool for economic and social change and helps this continent boom as others face declining birth rates.

"The challenges we face are formidable. At the same time, the opportunities to be seized are bountiful," the president of the African Development Bank, Akinwumi Adesina, told its annual meeting in March.

The alternative could see what The Economist called the "whiff of revolution" in Kenya explode into an continent-wide call for political and economic structures that prioritise the young.

It seems that geopolitical crises are 10 a penny in 2024, with concerns around the global financial system, an inflation crisis in the West, deflation in China and half the world's population heading to the polls. 

There is "little wonder that analysts speak of 'polycrisis', 'hellscapes'; and a 'new world disorder'", said The Economist. "And yet, for the moment at least, the world economy is laughing in the face of these fears."

At the start of 2023, there was a "widespread fear that the global economy would endure a tough recession as a result of central banks responding to sharp rises in prices by raising interest rates from record lows", said The Times.

The reality has been very different, with global GDP growing by 3% in 2023 and the early signs are that it will continue this year and into next.

'Soft landing'

Just this week, Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), told the World Government Summit in Dubai that the global economy would emerge relatively unharmed from the inflation crisis and its accompanying rapid increases in interest rates.

This is the so-called "soft landing that politicians, economists and policymakers have been dreaming of", said The Times "fuelled mainly by a robust expansion in GDP in the United States".

While some countries around the world have struggled to recover from the economic setbacks brought on by the Covid pandemic – notably China, Germany, the UK and Brazil – the US has "emerged particularly strong", said the BBC's New York correspondent Erin Delmore. The US stock market is at record highs, and with an economy posting a 3.3% gain in the last quarter of 2023, a strong labour market and falling inflation, the world's biggest economy "has outpaced its counterparts in Europe and elsewhere".

It has achieved this, said Delmore, by pouring trillions into the economy, keeping unemployment low through its flexible jobs market, and maintaining its energy independence.

'Oblivious to the new world disorder'

There are, of course, plenty of things that could upend this new-found optimism, including developments in the war in Ukraine, attacks in the Red Sea, escalation in the Middle East, a slowdown in China, tensions over Taiwan, and the re-election of Donald Trump and subsequent collapse of Nato.

But for now, "the consensus forecast for the global economy remains cautiously optimistic", said Kenneth Rogoff, former chief economist at the IMF, in The Guardian.

The reason the global economy is "so oblivious to the new world disorder" is, said The Economist, partly due to the coordinated interest rate hikes by central banks, which have managed to bring down inflation from a peak of more than 10% across the rich world to around 6%. "This not only raises households' purchasing power; it also raises their spirits" said the newspaper, with consumer confidence in the world's richest nations rising sharply since an all-time low in 2022.

There is also "a more intriguing possibility", said The Economist, that "after so many shocking global developments, the world no longer minds chaos as much as it once did".

Yes there is a "widespread belief that the global economy is headed for a soft landing", concluded Rogoff, but "as the world confronts yet another turbulent year, policymakers and analysts need to bear in mind that a soft landing means little if the runway is in an earthquake zone".

Nearly two years on from Vladimir Putin's invasion of Ukraine, neither economic catastrophe nor a popular uprising have come to pass, with most ordinary Russians resigned to war as a fact of life.

Russia's Foreign Minister Sergey Lavrov recently repeated satirist Mikhail Zhvanetsky's joke that "for our people to truly unite, they need a big war". But while acknowledging that Zhvanetsky wasn't serious, Lavrov added that "in every joke, there is an element of truth".

The minister went further, telling a press conference that despite the estimated 300,000 Russian solders killed or injured since the invasion began on 24 February 2022, the conflict in Ukraine had had a "positive impact on life inside" Russia.

What did the commentators say?

In some aspects, Lavrov's assessment appears correct. Despite fears at the start of the war that Western sanctions would cripple Russia's economy, it has proved remarkably resilient. 

The latest World Economic Outlook from the International Monetary Fund (IMF) forecast that Russian GDP will grow by 2.6% in 2024, up from 1.1% back in October. The UK, by comparison, is expected to grow by just 0.6% this year.

And although inflation remains high and interest rates are at 15%, international attempts to hamper the country's ability to finance its war effort – by targeting the financial system, oil and gas exports, and thousands of oligarchs – "have not dented Russians' economic optimism", said Gallup. The polling company found that record percentages of Russians believe their local economy (56%) and living standards (46%) are improving.

Russia had spent years developing a "sanction-proof economic plan dubbed 'Fortress Russia' that included moves like building up foreign reserves, cutting debt, and developing alternatives to Western financial systems such as the SWIFT payments network", said Quartz. So "life with sanctions hasn't been quite as bitter as Ukraine-supporting governments may have hoped". 

Russia has successfully transitioned to a "war economy" in which state spending on the military is crowding out other forms of economic growth. This mirrors the economic model of the late Soviet Union, Kristalina Georgieva, managing director of the IMF, told CNBC. "If you look at Russia, today, production goes up [for the] military, [and] consumption goes down," she said. "And that is pretty much what the Soviet Union used to look like. High level of production, low level of consumption."

What next?

Nearly 20,000 Russians have been detained for protesting against the war. But "all the naive predictions that popular discontent triggered by sanctions and the wartime restrictions imposed on daily life" would "bring down" Putin's regime have "come to nothing", said the Carnegie Endowment for International Peace think tank. "In many ways, quite the opposite has happened."

While it is hard to assess genuine levels of public support for the war or the regime, three in four Russians (75%) polled report being satisfied with their freedom to choose what they do with their lives, according to Gallup. "Satisfaction with freedom has been rising steadily for the past decade, reaching its highest points on record after the invasion of Ukraine," said the polling company. The war also shows no signs of denting ordinary Russians' daily levels of stress, worry and sadness, unlike in Ukraine, "where negative experiences have shot up since the war began". 

Many Russians live in a "twilight zone", said Politico, "where the war is both ubiquitous and nowhere; a rumbling threat as the backdrop to an – almost – ordinary life".

This may sound "like something straight out of George Orwell's 1984", said The Spectator, yet in many ways, Lavrov was correct in his assertion that Russia's "special military operation" had united the country. The invasion "enabled it to be cleansed of all those who felt no sense of belonging to Russian history or culture", after thousands moved abroad in opposition to the war.

"Most Russians might not identify with the regime, but they have consolidated around the Kremlin, which they believe to be fighting tooth and nail against a West that is seeking to destroy Russia," said Carnegie. This may be "at odds with reality", but "a great many Russians have accepted it as the most logical explanation for this protracted nightmare".

Lending is at the forefront of the emerging game of power politics between the West and China that looks set to define the 21st century.

Beijing began offering huge loans to countries in the developing world in the early 2000s, and since then “suspicions have swirled that these loans compete with the International Monetary Fund, offering comparable amounts of money in exchange for very different promises”, said Boston University’s Global Development Policy Center.

The IMF’s approach has proved “deeply unpopular” over recent years, said the Financial Times (FT), but now there is growing concern at Beijing’s opaque lending practices and accusations it is pursuing a deliberate policy of entrapping emerging countries in a vicious debt-cycle for strategic leverage.

What conditions do IMF loans carry?

Founded as a central pillar of the post-war “Washington consensus”, the US-based International Monetary Fund (IMF) has functioned as the primary lender of last resort for nation states around the world for more than 70 years.

Yet since the collapse of the Bretton Woods system in the 1970s the organisation has been synonymous with a form of neoliberal free-market “shock therapy”. As part of its strict “conditionality” requirements, countries must agree to bailout terms that include open markets, scrapping government subsidies, deregulating key sectors, privatisation and debt management.

“The strings attached to an IMF loan, which officially go by such deceptively innocuous-sounding names as ‘conditionalities’ and ‘structural adjustment programmes’, have in the past created social chaos across the globe, all the while making claims that it develops the economy of whatever host country it attaches itself to,” said The Business Standard.

“For years the IMF prevented low-income countries from taking up non-concessional, large-size commercial loans,” argued Good Governance Africa. “As other Western lenders often rely on the international financial organisation’s assessment of countries’ macroeconomic policies and readiness for reforms,” added the non-profit, developing countries especially are “increasingly looking elsewhere for finance”.

How does this differ from Chinese loans?

Over the past two decades China has sought to grow its economic influence around the world by offering specific long-term loans for infrastructure projects, predominantly in emerging countries in Africa, South East Asia and South America.

Between 2000 and 2016, for example, China delivered an estimated $125bn in loans to African countries, according to the China-Africa Research Initiative at the Johns Hopkins School of Advanced International Studies. This process has been turbocharged since 2013 through Beijing’s flagship $838bn Belt and Road Initiative, “a programme that made it the world’s biggest financier of public works, eclipsing the World Bank”, said the FT.

In recent years, China, through its state-controlled agencies and policy banks, has changed strategy. It has “shelled out tens of billions in opaque ‘emergency loans’ for at-risk nations, indicating a shift to providing short-term emergency lending rather than longer-term infrastructure loans”, said Fortune.

“Critics of the IMF might cheer China’s lending as a source of ‘policy space’ for governments to choose their own development strategy,” said BU’s Global Development Policy Center, but “whatever their normative interpretation, most observers agree on the basic logic at play: Chinese loans present a new option for countries that would rather not go to the IMF”.

‘Debt-trap diplomacy’

There is growing concern among Western policymakers that this is part of a deliberate “‘debt-trap’ policy, trying to ensnare low and middle income countries in dependency”, said James Sundquist in Development and Cooperation.

So-called “debt-trap diplomacy” was first coined by Indian academic Brahma Chellaney in 2017 to describe what he called China’s predatory lending practices. Through these the country “exerts bilateral influence by bankrupting partner nations with unsustainable debt and then demanding steep concessions as part of the debt relief – or so the thinking goes”, reported The Diplomat.

“In retrospect, China’s designs might seem obvious,” Chellaney wrote in 2017. “But the decision by many developing countries to accept Chinese loans was, in many ways, understandable. Unable to secure financing from Neglected by “institutional investors”, they welcomed Chinese overtures. “It became clear only later that China’s real objectives were commercial penetration and strategic leverage; by then, it was too late, and countries were trapped in a vicious cycle.”

‘Opaque and secretive’ lending practices

The opaque and secretive terms of lending from Beijing is also causing concern at a time when “pressure is rising on China to take a more active role in helping strained economies ease their debt crises”, reported Asia Financial.

“Unlike the IMF, which announces the details of its credit lines, debt relief and restructuring programmes to debtor countries, China operates largely in secret,” said the FT.

“As global interest rates rise and concern about developing world debt risk swirls, ‘sustainability’ and ‘transparency’ have become buzzwords at organisations like the IMF and World Bank,” reported South China Morning Post, putting Western financial institutions on a collision course with China.

Russia’s economy is in a state of shock following the introduction of “absolutely unprecedented” sanctions brought about by its invasion of Ukraine, the Kremlin has said.

“Our economy is experiencing a shock impact now and there are negative consequences, they will be minimised,” Vladimir Putin’s spokesperson, Dmitry Peskov, told reporters in Moscow. “The economic war that has started against our country has never taken place before. So it is very hard to forecast anything.”

As world leaders threaten to ratchet up sanctions further following allegations that Russia is targeting civilians in Ukraine, Moscow has banned exports of more than 200 products until the end of the year, prompting speculation that a “new iron curtain” has descended.

Economic crackdown

The US has banned all imports of Russian oil and gas, while the UK has said it will phase out Russian oil imports by the end of 2022. Joe Biden said the move targeted “the main artery of Russia’s economy”.

The EU, which currently imports a quarter of its oil and 40% of its gas from Russia, has said it intends to switch to alternative suppliers. In another crunching measure, Germany said that final approval of the Nord Stream 2 gas pipeline has been put on hold, prompting the company behind the project to lay off all of its staff.

Australia has “banned imports of Russian oil”, The Guardian reported, but only after “shipments already ordered and paid for arrive”. Japan is banning exports of “Russia-bound oil refinery equipment” and “Belarus-bound general-purpose items” that could be used by its military in Ukraine, reported Reuters.

Bans on commodities have also been accompanied by tough financial measures. Western countries have frozen the assets of Russia’s central bank and suspended it from the central banks’ organisation. The Guardian said this is a “devastating move” when a sizeable chunk of Moscow’s $640bn war chest is held in dollars, euros and sterling.

Germany and its Western allies have also cut Russia out of the SWIFT global payment system. The Times said this move “could cut Russia off from transactions including overseas profits from oil and gas production – more than 40% of national revenue”.

The UK, EU and US have also imposed sanctions on several individual oligarchs, who are close to the Kremlin. The most high-profile of these moves came yesterday when the UK government froze the assets of Chelsea FC owner Roman Abramovich.

At least 30 countries have banned Russian planes from their airspace and Western governments are also considering further bans on marine traffic after the UK announced it would stop ships and yachts “with any Russian connection” docking at its ports.

‘Blowing holes’

Russia faces a “deep recession” this year, the chief of the International Monetary Fund has warned. The sanctions are “denting severely the purchasing power and standard of living for a vast majority of the Russian population”, said Kristalina Georgieva.

“Sanctions are blowing holes in the Russian economy,” said the Financial Times’ associate editor Jonathan Guthrie. “The rouble has collapsed, bond default risk has spiked, the Moscow stock exchange has closed and Russian oil trades at ever-deeper discounts to Brent.”

Although sanctions are “sometimes dismissed as token gestures”, he added, “in this case, they are doing real damage and could trigger a recession”.

The value of the rouble has “plummeted” to a record low against the dollar, less than 1 cent, reported NPR, while the Russian Central Bank more than doubled its key interest rate to 20%.

‘Pariah state’

Russia will soon be unable to pay its debts, according to the leading credit agency Fitch Ratings, which warned that a default is “imminent”. Debt defaults make it harder and more expensive for a nation to borrow due to “reputational damage”, said The Guardian.

The Washington Post said measures by Western nations and companies “threaten to cut off Russians to an extent unseen since the Soviet era”, prompting talk of a “new iron curtain” and “the rise of a pariah state version of Russia”.

The “iron curtain” was the name given to the “ideological, and later physical barrier, that existed between the capitalist/liberal democracies of western Europe and the communist/Soviet bloc of eastern Europe” during the Cold War, said the BBC.

Alexander Baunov, a senior fellow at Carnegie Moscow, told Axios that as sanctions “start to bite”, many Russians will be “prepared to accept the Kremlin line that they are victims of economic warfare from the West that has nothing to do with the war in Ukraine”.

More than half the world’s countries have approached the International Monetary Fund for a bailout to weather the financial crisis caused by the coronavirus pandemic.

The IMF’s Managing Director Kristalina Georgieva told a meeting of G20 finance ministers and central bank governors that more than 100 countries have so far asked for emergency assistance.

With many countries in full lockdown and their economies effectively in stasis, the IMF warned this week the coronavirus pandemic is plunging the global economy into its deepest slump since the Great Depression of the 1930s.

On Tuesday, the Washington-based body said it expects global GDP will contract by 3% in 2020, “a far worse recession than the one that followed the global financial crisis of 2008” says CNN, with a risk it could extend into 2021 if policymakers fail to coordinate a global response.

The Telegraph estimates world leaders have already committed almost $8 trillion (£6.4 trillion) to battle the coronavirus and its economic fallout, “driving public debt up to dangerously high levels”.

More than $7.8 trillion has so far gone towards health, tax and spending measures, public sector loans and equity investments, plus other loan guarantees and liabilities.

“At the same time tax revenues will slump as the economy grinds to a halt,” says the paper.

Speaking to CNBC, Georgieva she was ready to use the IMF’s “full toolbox and $1 trillion firepower” of lending capacity, noting that 10 countries have so far received emergency funding, and half of the remaining countries should receive their requested financial lifelines by the end of April.

“This is an emergency like no other. It is not because of bad governors or mistakes,” she said, “and for that reason, we are providing funding very quickly.”

CNN’s Sherisse Pham writes that while the IMF chief “acknowledged that the fund has a reputation for imposing tough conditions on countries seeking bailouts”, this time she asked for governments to prioritise paying doctors and nurses, making sure health systems are functioning, and vulnerable people and first responders are protected.

While the coronavirus has so far concentrated mainly in G20 nations, in a recent interview with Reuters, the IMF’s chief economist, Gita Gopinath, predicted that the pandemic would be devastating for the economies of poor countries, “many of which have fewer resources to deal with the fallout from the pandemic, not to mention high debt levels and weak health-care infrastructures”, says Forbes.

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Two studies have forecast that Britain’s economy will grow faster than major Eurozone rivals this year.

The International Monetary Fund predicts that, assuming there is an orderly Brexit and a steady transition to a new relationship with the bloc, growth would accelerate from 1.3% last year to 1.4% this year and 1.5% in 2021.

It believes that the eurozone will grow by 1.3% this year and 1.4% next. Germany, France, Italy and Japan will struggle to keep up and the only two G7 advanced economies to outpace Britain would be the United States and Canada.

The Times says that PWC’s global CEO survey found that European chief executives regard Britain as a key market for growth and investment.

The accounting firm found that Britain was rated as the fourth most important territory for growth, after the United States, China and Germany, as the country’s “attractiveness” returns to levels last recorded in 2015.

Bob Moritz, PWC chairman, told the American broadcaster CNBC: “When you look at the UK specifically... you have got a little bit more certainty.”

However, CNBC adds that the IMF has become less optimistic about global growth. After forecasting in October a global growth rate of 3% for 2019 and of 3.4% for 2020, the Washington-based institution has now revised down those forecasts to 2.9% and 3.3%, respectively.

“The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilises at close to current levels,” Gita Gopinath, the IMF’s chief economist, said.

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Nations must end protectionist trade conflicts and unify to stop the “synchronised slowdown” of the global economy, warned the new head of the International Monetary Fund (IMF), Kristalina Georgieva, during her inaugural speech on Tuesday.

Speaking in Washington, the Bulgarian economist, managing director of the IMF since 1 October, said: “In 2019, we expect slower growth in nearly 90% of the world. The global economy is now in a synchronised slowdown. This means that growth this year will fall to its lowest rate since the beginning of the decade.”

“We are decelerating, we are not stopping, and it’s not that bad. And yet, unless we act now, we are risking a potential more massive slowdown,” she said.

However, “while the need for international cooperation is going up, the will to engage is going down”, she warned, adding that the disintegration of established global structures could last a generation, leading to “broken supply chains, siloed trade sectors, a ‘digital Berlin Wall’ that forces countries to choose between technology systems.’”

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Georgieva also addressed the impact of the US’s trade war with China, which she said could cost the global economy around $700 billion by 2020 .

“In this scenario, the whole economy of Switzerland disappears,” she added, previewing new Fund research to be unveiled during IMF and World Bank annual meetings next week.

“The warning comes at a potential turning point in the trade conflict between the world’s two largest economies,” reports The New York Times. “American and Chinese negotiators are meeting in Washington this week to try to resolve a trade war that has begun to inflict economic pain in both countries.”

The IMF chief also spoke about the perils of Brexit. “It is very obvious that this [Brexit] is going to be painful,” she told the BBC, saying UK politicians will have to work out how to protect people from its worst side effects. “The choices are not that many - you either borrow or you look at the [tax] increase,” she said.

Georgieva advised central banks to keep interest rates low as a form of stimulus “where appropriate”, but also warned that chronically low interest rates could produce similar conditions which led to the 2008 crash.

The Telegraph says “financial vulnerabilities are building as pension funds and insurers take on riskier investments to boost their returns, and companies pile on cheap debt for acquisitions instead of investing”.

Georgieva said the increase in risk-taking meant that if a major downturn occurs, corporate debt at risk of default would rise to $19 trillion, or nearly 40 percent of the total debt in eight major economies. This is above the levels seen during the financial crisis”.

George Osborne is reportedly considering throwing his hat into the ring to become the next chief of the International Monetary Fund (IMF), replacing Christine Lagarde.

According to The Guardian, the former chancellor has “told allies he would be well suited to succeed Lagarde”, after it emerged this week that she has been nominated to succeed Mario Draghi as head of the European Central Bank.

As the Guardian notes elsewhere, “running [the IMF] is one of the most important jobs in the global economy”, with responsibility for “managing one of the pillars of the world order, monitoring global growth, lending to countries in crisis, and driving (for good or ill) a message of economic liberalisation”.

One of the organisation’s most crucial functions is as a “global lender of last resort, stepping in to bail out countries if they fall into financial difficulties”, says The Daily Telegraph, which cites recent examples including billion-dollar interventions in Greece and Argentina.

If Osborne were to succeed in his bid, it would see him become the first Briton to lead the Washington-based body.

The Financial Times reports that, having recently backed Boris Johnson to become prime minister, Evening Standard editor Osborne “also has high hopes of winning the backing of a British government led by the former foreign secretary”. The FT also claims that he reportedly told colleagues and friends that the IMF needs a “skilled political communicator and operator... not a technocrat”.

But Osborne will face some fierce competition if he formally enters the race.

Ironically, the man whom Osborne appointed to the most prestigious role in UK economics - Bank of England governor Mark Carney - is the favourite to beat him to the top job.

Raghuram Rajan, the former head of the Indian Central Bank, is thought to be the leading contender from a non-Western country. His chances may have been improved by the recent appointment of David Malpass, an American, as president of the World Bank.

The appointment, according to the Telegraph, went ahead despite “increased pressure for a candidate from an emerging market nation to take the role for the first time” - a move which may “weigh against candidates from developed nations for the IMF role”.

At present, the odds appear stacked against Osborne. Paul Diggle, of Aberdeen Standard Investments, told the Telegraph that Osborne may miss out because of his austerity policies as chancellor.

“He is on the long lists but I don’t think Osborne is a realistic candidate,” Diggle said. “He is a big advocate for expansionary fiscal contraction and that is no longer en vogue at the IMF. His thinking doesn’t really chime with where the Fund is at.”

Meanwhile Carney, who is Canadian but also holds British and Irish citizenship, is “well placed to appeal to several different groups”, the Telegraph adds.

James Knightly, chief international economist at ING, told Yahoo News that Carney “has the CV, the experience, and the connections to be seen as a safe pair of hands”, while Naeem Aslam, chief market analyst at ThinkMarkets, said that he has “done a remarkable job at the BoE during the midst of the Brexit chaos”.

“Carney is a definite contender for the top spot at the IMF,” Aslam added. “It is usual for central bankers to go for a role like this and we believe that Carney has all the experience and charisma to fit the bill.”

But not everyone believes it is a done deal. The Guardian suggests that Osborne “built up links with China during his time running the UK Treasury, and is also well-connected to US Republicans (who share his vision of a small state)”, all of which could help him “win the necessary support”.

Growth across 70% of the world economy is slowing amid a perfect storm of stagnating manufacturing, slumping trade growth and political turmoil, the IMF has warned.

The International Monetary Fund, which monitors emerging risks and lends to countries in distress, cut its growth forecast for 2019 to 3.3%, which would make this year the weakest since the financial crisis.

IMF chief economist Gita Gopinath said the global economy is in a “delicate moment”, while the organisation's Managing Director Christine Lagarde put it in plainer terms:

“Only two years ago, 75% of the global economy experienced an upswing. For this year, we expect 70% of the global economy to experience a slowdown in growth” she told the US Chamber of Commerce.

The downward revision “came in part from a sharp drop in global trade volumes in recent months,” CNN Business says, “following an artificial run-up in imports and exports in 2018 in advance of tariffs imposed by the United States”.

“But a pickup is on the horizon” says the news network, with growth expected to recover next year unless “policy missteps” get in the way.

According to Bloomberg’s Andrew Mayeda, “a series of encouraging developments have boosted optimism about the world economy in recent weeks, including the decision of the Federal Reserve to put interest-rate hikes on hold and encouraging data from China’s manufacturing sector and the US job market”.

“Still, the IMF is warning that risks are skewed to the downside, with a range of threats menacing the global economy, including the possible collapse of negotiations between the US and China to end their trade war” he writes.

Reuters reports that another “potential misstep lies in Britain’s indecision over how to leave the EU”.

“Despite looming deadlines, London has not decided how it will try to shield its economy during the exit process” it says. “The IMF’s new forecast assumes an orderly ‘Brexit,’ but the Fund said a chaotic process could shave more than 0.2% from global growth in 2019”.

Any recovery is “precarious”, The Daily Telegraph says, and based on hopes countries such as Argentina and Turkey can escape their recessions.

“By contrast the rich world will continue to slow next year in any case” says the paper.

Eurozone growth is set to fall from 1.8% last year to 1.3% in 2019 before rising to 1.5% in 2020, with Spain the strongest performer of the euro’s big four economies.

“Weakening demand, production problems from new German rules on car emissions, fears over Italian debt and street protests in France have all drained momentum from the economy,” the Telegraph says.

Major financial institutions may be powerless to prevent the next global economic downturn from tuning into a full-blow recession, the International Monetary Fund has warned.

In a speech on the future of the eurozone, the IMF’s deputy director David Lipton, warned of the depleted power of central banks and governments to combat another sharp economic shock.

“The bottom line is this: the tools used to confront the global financial crisis may not be available or may not be as potent next time” he said.

A programme of quantative easing introduced by central banks in the wake of the 2008 financial crisis pumped huge amounts of cash into economies to offset the impact of the credit crunch and keep major financial institutions and businesses afloat.

However, the Daily Telegraph reports that “these efforts were so vast, and the recovery of economies so weak in the decade since the crisis, that central banks' balance sheets have swollen to a level that leaves little room left for manoeuvre”.

“Following various bailouts and slow recoveries many governments still have large debt piles, reducing the fiscal firepower available to counteract recessions” the paper adds.

Lipton warned there may also be “political resistance” to more bailouts because of accusations that the burden of the last recession fell unevenly on society.

The warning follows increasing concern the global economy is slowing down.

Weakening growth from China combined with a global trade war instigated by Donald Trump, sluggish eurozone growth and the fear of sudden economic shocks such as a no-deal Brexit have pushed investor confidence down.

Added to that is the fear that the US economy, still the world’s largest, is on the cusp of overheating.

Its current economic expansion will hit a decade in June of this year – matching the longest on record – and “while the economy could keep on growing, just the length of the current expansion means a recession or at least a slow down of the economy should appear sooner rather than later”, says Forbes.

Reuters reports that “concerns about the health of the world economy heightened last week after cautious remarks by the US Federal Reserve sent 10-year treasury yields to the lowest since early 2018”.

Historically, yield curve inversions have often preceded recessions, most recently in 2007 before the global financial crisis.

All this means that amid rising debt and a worldwide monetary tightening, “a mounting weight of evidence suggests the world is one shock away from a contractionary vortex that would be extremely hard to control”, says Ambrose Evans-Pritchard in the Daily Telegraph.

Venezuela’s beleaguered President Nicolas Maduro has carried out one of the greatest currency devaluations in history in a bid stablise the economy and stem the mass exodus which threatens to turn into a full-blow refugee crisis that will engulf the continent.

With the International Monetary Fund warning inflation could hit 1,000,000% this year, Caracas has devalued its currency by 96% and also begun issuing new banknotes after slashing five zeroes off the crippled bolivar.

This means that the official rate for the currency will go from about 285,000 per dollar to 6 million, a shock that officials have tried to partly offset by raising the minimum wage 3,500% to the equivalent of $30 a month.

The new sovereign bolivar, named to distinguish it from the current strong bolivar, will be anchored to Venezuela's widely discredited cryptocurrency, the petro.

Each petro will be worth around $60 (£47), based on the price of a barrel of the country's oil.

Along with plans to increase the price of petrol, it forms part of Maduro’s promise of “a magic formula” to get his country back on track, although many are skeptical it will work.

Economists say the package of measures “is likely to accelerate hyperinflation rather than address its core economic troubles, like oil production plunging to levels last seen in 1947”, reports The Independent.

“It’s not clear how the shock measures announced by Maduro will sit with one of his key allies: the military” who have been handed the keys to several key ministries says the Financial Post.

“Clearly this will hit Maduro’s popularity, but power is being sustained with bullets and not with votes,” Moises Naim, a fellow at the Carnegie Endowment and a former minister in Venezuela, said from Washington. “As long as the military continues to have access to lucrative businesses it will continue to grant support to the government.”

The measures could also have wider ramifications outside Venezuela.

CNN reports that the mass exodus of citizens fleeing the economic and humanitarian crisis is ratcheting up tensions in neighbouring countries such as Peru, Ecuador and Brazil.

On Saturday, a mob of Brazilians attacked a group of Venezuelans in a border city and destroyed a migrant camp, prompting President Michel Temer to hold an emergency meeting on Sunday as regional tensions flared over the numbers fleeing Venezuela.

In Ecuador, a new rule came into effect over the week requiring Venezuelan citizens entering the country to present a valid passport.

The UN High Commissioner for Refugees (UNHCR) says more than half a million Venezuelans have crossed into Ecuador via Colombia since the start of the year and that the number is accelerating with some 30,000 entering in the first week of August alone, prompting the government to declare a state of emergency.

“The exodus of Venezuelans from the country is one of Latin America's largest mass-population movements in history,” UNHCR spokesman William Spindler said in a statement. “Many of the Venezuelans are moving on foot, in an odyssey of days and even weeks in precarious conditions.”

The King of Jordan has sought to diffuse growing unrest in the country by replacing his prime minister following days of anti-austerity protests.

King Abdullah has asked former World Bank economist Omar al-Razzaz to form a new government after Hani Mulki resigned as prime minister following the country’s biggest demonstrations in years.

In Jordan, “the monarch has extensive powers and can appoint governments and approve legislation”, says the BBC.

What caused the protests?

Planned tax hikes and the abolition of bread subsidies have brought thousands of people out onto the streets over the past week, in a rare show of public defiance in a country that has remained relatively stable through years of regional turmoil.

Security forces have detained 60 people for breaking the law during the protests and 42 security force members had been injured, but police say protests remained under control.

Why are taxes rising?

Reuters says Jordan’s economy has “struggled to grow in the past few years in the face of chronic deficits, as private foreign capital and aid flows have declined”.

The government claims it needs more funds for public services but opponents says the tough IMF-imposed fiscal consolidation plan has worsened the plight of poorer Jordanians and squeezed the middle class.

What happens next?

A general strike has been called for Wednesday, but in a sign the tax hikes could be shelved, the Petra news agency said lawmakers were planning to ask the king’s permission to hold an exceptional session in which a majority were expected to call on the changes be withdrawn.

The International Monetary Fund has cut its growth forecast for the UK economy in its first downgrade since the Brexit vote last year.

The economy is expected to grow by 1.7 per cent this year, the IMF said, 0.3 per cent less than its April forecast, according to The Guardian.

That was because of a "tepid performance" so far this year, its economic counsellor Maurice Obstfeld said, as well as concerns over the terms of the UK's departure from the EU.

"The ultimate impact of Brexit on the United Kingdom remains unclear," he said.

The downgraded forecast stood in contrast to other European Union countries. Germany was upgraded by 0.2 points and France by 0.1, taking them to 1.8 per cent and 1.5 per cent respectively. Italy and Spain both saw a 0.5 per cent rise in their growth predictions.

The IMF did raise the UK's growth forecasts following the Brexit vote, after activity was stronger than expected in the latter half of 2016. Last October it predicted growth of 1.1 per cent, but later raised this to 1.5 in January and then 2 per cent by April.

The UK is still predicted to grow by 1.5 per cent in 2018. The forecast was left unchanged but the organisation said the chief risk was that negotiations on leaving the EU would end in failure.

The United States also had its figures trimmed, to 2.1 per cent this year from 2.3 per cent. The IMF cited Donald Trump's failure so far to pass a series of tax cuts as the reason for the downgrade.

The European Union is to unveil plans to force large companies to disclose more about their tax affairs, following the Panama Papers revelations.

Britain's EU Commissioner, Lord Hill, will today set out proposals to make multinational firms with more than £600m in annual sales detail how much tax they pay and where.

"There is an important connection between our continuing work on tax transparency and tax havens that we are building into the proposal," Lord Hill has said.

According to the BBC, companies will now need to disclose information such as total new turnover, pre-tax profit, income tax due, amount of tax paid and accumulated earnings.

Country-by-country reporting rules already apply to banks as well as mining and forestry companies, but it is hoped the new plans will see this expanded to cover companies accounting for about 90 per cent of corporate revenues in the bloc, an EU spokesman told the corporation.

Meanwhile, Christine Lagarde, the managing director of the International Monetary Fund, has "poured cold water" on hopes that a global tax authority could be introduced, reports The Guardian. The idea of an intergovernmental UN tax body faces major obstacles from governments, she said.

"We need to be aware of the massive hurdles and obstacles along the way because taxation for the last century or so has been defined, conceptualised, designed, implemented on a purely territorial sovereign basis," said Lagarde.

"And if anything, levying taxation is considered as an attribute of sovereignty and anything that takes away from that is going to be very strongly opposed by many countries in the world, many forces."

However, she conceded that the current situation was not satisfactory and said it was an area "where we all have to think outside the box".

By Sophia Ignatidou

While the world waits to see what will happen after Greece went into arrears on its IMF loans, the country's main newspapers are awash with headlines predicting an imminent doomsday.

Most mainstream media outlets in Greece have close ties to political parties or business magnates, so their coverage is often viewed with a healthy degree of scepticism. And as the country edges ever closer to its referendum on whether to accept the latest EU bailout proposals, newspapers aligned with the Syriza government have unsurprisingly come out supporting the No campaign, while those affiliated with the opposition are campaigning for a Yes vote, or calling for the whole referendum process to be scrapped.

The argument for Yes

On the morning of 1 July, the Ta Nea newspaper warned of "fears of deposit haircuts" and To Ethnos declared Greece to be "a country under siege" after its IMF default. To Vima urged Tsipras to scrap the referendum if he and his government wished to retain "the little dignity they have left".

Kathimerini on the other hand, sees the referendum as Tsipras's "escape plan" after he has become stuck in a political and economic impasse, commenting that "his escape via a referendum has proved detrimental for the country. Internal governmental inefficiencies should not lead Greek people to a great disaster."

No more compromises

The Syriza-affiliated Avgi newspaper supported Tsipras's argument, calling a No vote "the catalyst for a new deal". The paper's main editorial appealed to all voters who felt disenfranchised by the previous governments, suggesting "the referendum is the way through which the people take an active role in the negotiations, regardless of whether they choose Yes or No." It even praised the referendum as a negotiating tool: "the debt is officially on the table and its restructuring is what will get Greece out of the tunnel of the memorandums."

Independent newspaper Efsyn published a poll conducted by the ProRata institute giving a lead to the pro-No vote and warned that "terrified people can become unpredictable" in an editorial championing a "No without delusions"

The Communist party's Rizospastis newspaper took things one step further by calling for "people to turn their back to the blackmail and the terrorising dilemmas posed by the referendum". The paper urged people to vote No both to the proposal from the European Commission, European Central Bank and IMF, and also to the Syriza plan.

MORE bad news for shadow chancellor Ed Balls. The IMF’s Christine Lagarde is expected this afternoon to raise the forecast for Britain's economic growth from 1.9 per cent to around 2.4 per cent. Growth in the UK is outstripping the rest of the world.

Ben Brogan, deputy editor of the Daily Telegraph, detected the sound of “chortling” at Conservative HQ this morning, what with this latest economic breakthrough and the sight of their Lib Dem colleagues sinking in the Rennard mire.

Brogan blogged: "Tory polling shows that Labour has no economic credibility, that Ed Balls is a liability, and that Mr Miliband is unconvincing as a future prime minister."

The growth figures are a gift for Chancellor George Osborne, giving him the chance to tell his Labour opposite number: “I told you so”. As Nick Robinson, the BBC's political editor of the BBC, tweeted: "IMF due to upgrade forecast for UK econ growth today. Unemployment stats tomorrow. Tories will use to taunt Ed Balls."

Certainly there's a danger Osborne will look like a puffed-up Cheshire cat when he appears at the World Economic Summit in Davos starting tomorrow. Last year, he clashed with Olivier Blanchard, the IMF's chief economist, who accused Osborne of “playing with fire” with his austerity plan. Blanchard is now saying he is “pleasantly surprised” by the strength of the recovery.

The Mole expects Balls's critics – and there are many on his own benches – to continue the whispering campaign against him, even though Ed Miliband said on the Andrew Marr Show on Sunday that he would not move his shadow chancellor before the general election.

"Ed Balls is doing a really good job," said Miliband. "He’s going to be the shadow chancellor going with me into the election.

"Look, people have their critics. The thing I say about Ed Balls – he’s got a clear sense of what this economy needs. He’s working with me on tackling the cost of living crisis that we face and he’s got the toughness to stand up to lots of people who want more spending…"

Miliband's carefully worded assurance avoided a commitment to make Balls the chancellor after the election, if Labour can win it, but it seems inconceivable he will be moved now. Cue more chortling from Chancellor Osborne’s office.

Meanwhile, Balls has been keeping his head down since his red-faced performance at Osborne's Autumn Statement. Yesterday, as Guido Fawkes reports, he was campaigning with his old boss Gordon Brown in Scotland.

To be fair to Balls, there are good reasons for his questioning whether the UK is enjoying the “right sort of recovery” and whether it can be sustained. The Financial Times reported at the weekend that Britain's recovery is dangerously London-centric, creating an even greater wealth gap between north and south.

City analysts are pointing out that the UK’s rapid growth compared to the rest of the world is only because we started from such a low base. Balls can still argue that we would have been enjoying growth earlier, if only Osborne had adopted his Plan B last year.

But Balls’s big problem is not growth. It is debt. In the same Andrew Marr interview, Miliband dithered over whether Labour would go into the next general with a clear commitment to eliminate the deficit in the next five-year Parliament.

Osborne has set out his plans to continue cuts in spending after the next election and he is expected to challenge Balls to commit to his plan with a deficit reduction bill later this year. It is a trap that Balls and Miliband will want to avoid.

The big question now is: will the IMF forecast for UK growth feed through into a feelgood factor for the Tories before the next general election? Or will the Balls/Miliband mantra about the “cost-of-living crisis” continue to chime with voters?

James Kirkup of the Daily Telegraph says in his blog it has now been 216 days since David Cameron gave one of his monthly press conferences. The Mole would not be surprised if Cameron decided to hold one now.

WHAT DOES Mark Carney, the Canadian picked to run the Bank of England, think of the UK's economy? According to the Daily Telegraph, not much. Speaking at a fringe event at the International Monetary Fund's spring conference in Washington yesterday, Carney said Britain was still in "crisis", adding: "The US is breaking out of the pack of crisis economies that include the eurozone, the UK and Japan."

• See The Business for The Week's daily news round-up

Carney will be paid £800,000 a year in the hope he can boost Britain's growth when he becomes governor in July. But discussing the UK's economy yesterday, he said: "The growth numbers are certainly not particularly good." Carney, who currently heads the Bank of Canada, promised he would say more once he takes over from Sir Mervyn King at the BoE. He said "the flip side" of the UK's problems "is the tremendous opportunity that is there".

However, in comments that will disappoint Chancellor George Osborne, Carney argued that governments should not be looking to central banks to restore economies to prosperity. "Some people may be expecting central banks to do too much," he said. "If we want to talk about ultimate sources of growth, sustainable fiscal policy is a necessary condition. Sustainable growth comes from the private sector, not from the IMF, Bank of Canada or anyone else."

Carney also praised America's central bank, the Federal Reserve, for signalling to the financial markets when it is thinking about raising interest rates, a policy he could adopt at the BoE.

Carney's comments come two days after the IMF warned Osborne was "playing with fire" with his austerity policies. The international economic body cut its growth forecast for the UK and called for more flexibility in Osborne's approach.

UNTIL a few days ago, it looked as if the dust was settling on the Cyprus crisis. With €10 billion promised from the EU and IMF, and a further €7 billion to come from the uninsured depositors in the island's two largest banks, the hope was that yet another bailout had been put to bed.

But one of the lessons of the unending euro debacle is that once a country gets into trouble, whatever is done to get it out is never enough. Greece has been bailed out so many times even the experts have lost count. Ireland – supposedly the poster boy for EU imposed austerity – has just had to be given an extra seven years to pay its debts.

In Cyprus's case, the amount required to fill its financial black hole has risen from €17 billion to €23 billion in the three weeks since its bailout was signed. To make matters worse, with a German election due, Chancellor Merkel is adamant that no more outside help will be forthcoming. The Cypriots, it seems, will have to find the extra €6 billion - €5,000 for every adult and child in the country - from their own rapidly diminishing resources.

But it is not just the extraordinary speed with which the stricken island's finances are collapsing that marks Cyprus out from other euro disasters. In all previous bailouts the banks have been propped up. In Cyprus, for the first time, they have been allowed to collapse and depositors have lost their money.

Because those with less than €100,000 in their accounts – the amount guaranteed by the EU - were spared, the eurozone authorities have been able to claim that elsewhere it is business as usual for the single currency. No one, however, really buys this. Letting the two largest Cypriot banks fail has clearly changed the rules of the game, and not just for dodgy Russian oligarchs.

What happened in Cyprus has driven a coach and horses through plans to establish a eurozone banking union. Only a few months ago this was the big idea to save the euro; now it has been set back for years, possibly for ever.

Instead, post-Cyprus, the message is that, when it comes to banks, countries are on their own. The repercussions of this volte face are likely to be significant, and not at all what the EU intended.

Up to now, when governments have had to impose austerity at the behest of Brussels and Berlin, they have been able to argue that, if people take the medicine and stay in the euro, then at least nobody will lose their savings. Faced with this trade-off, countries as different as Ireland and Greece have been prepared to accept cutbacks in wages and welfare which, even a couple of years ago, would have been unimaginable.

But in the wake of the Cypriot bank failures this quid pro quo can no longer be relied on. Not only have many lost their savings, those whose money is still intact have been made subject to draconian financial restrictions to prevent them sending it out of the country.

In practical terms this means that a euro in Cyprus is no longer the equal of a euro elsewhere. When it will be again – if ever – no one knows.

To say that, after all this, the obvious next step for Cyprus would be to leave the euro altogether and regain control over its own currency, would be too simple. Quitting would be a huge decision. Confidence in Cyprus's financial system will remain low for a long time, whatever route it follows.

The world has been expecting one or other country to leave the single currency for so long now, that bailout ennui has set in. Nevertheless, there is little doubt that by insisting that savings be lost and capital controls be imposed while a country is still in the single currency, the EU has unwittingly made the cost of leaving much less daunting than it was. A euro exit must now be a possibility, in a way that it was not before the Cypriot bailout and bank failures.

Across Southern Europe popular despair and fury at what is happening to the economy are rising sharply, almost week by week. If the price of Cyprus staying in the euro is that, on top of everything else, it has to find another €5,000 a head, without any more EU help and when the economy is already on its knees, then leaving really might become the least worst option available.

PARIS – Is the International Monetary Fund regretting its decision to appoint as its new chief another French citizen? When Christine Lagarde replaced her compatriot, the disgraced Dominique Strauss-Kahn, as managing director of the IMF last year, it was hoped she would bring a more dignified approach to the position after her predecessor became embroiled in one sex scandal after another.

Lagarde certainly looks the part – she's a savvy, sophisticated woman who's regarded as one of the world's leading economists - but her image is in danger of being seriously tarnished after French police raided her Paris home on Wednesday as part of their ongoing fraud investigation into the activities of the controversial tycoon Bernard Tapie.

The 70-year-old Monsieur Tapie is the sort of character the British don't really produce. A charismatic and successful businessman, he is also known as a politician, singer and actor, once appearing in a film entitled Men, Women: A User's Manual. He also spent six months in prison after being found guilty in 1996 of corruption.

Ten years after his release, and having previously served as a Minister of City Affairs under the Socialist government of Francois Mitterand, Tapie came out in support of Nicolas Sarkozy's UMP party in the 2007 French presidential election.

The police investigation in which Madame Lagarde now finds herself embroiled stems from her decision in 2008 to award an arbitration payment of €285m to Tapie when she was Sarkozy's finance minister.

According to news channel France24, investigating magistrates suspect Lagarde of "complicity in embezzling public funds after she overruled objections from advisers" and proceeded with the huge payout to Tapie. If investigators uncover evidence that Tapie was given a deal in return for his support of the UMP, then Lagarde could be placed under formal investigation by French authorities.

The allegations against Tapie go back to the early 1990s when he bought the Adidas sportswear company with money loaned him from a sister company of the then state-owned bank Credit Lyonnais.

The loan arrangement later turned sour and Tapie sued the bank, though he lost the case and was in the process of appealing when Lagarde intervened on his behalf. Lagarde denies any malfeasance on her part, with her lawyer, Yves Repiquet, declaring: "This search will help uncover the truth, which will contribute to exonerating my client from any criminal wrongdoing."

Reaction to the raid has on the whole been muted in the French media, although that might be because their attention is riveted on another case of alleged financial malpractice, this one involving the country's budget minister, Jerome Cahuzac, who resigned on Tuesday after being placed under formal investigation amid accusations he opened a Swiss bank account to conceal money from the French taxman.

Cahuzac protests his innocence but has nonetheless stood down in an attempt to lessen the embarrassment for President Francois Hollande, who replaced Sarkozy last May with a promise to end the often sleazy relations that exist in France between politicians and businessmen.

The timing of the raid on Lagarde's home – cynics are wondering if it's a coincidence that it happened so soon after Cahuzac's fall from grace – couldn't be worse for the IMF chief as she struggles with the fallout over the the handling of Cyprus's bail-out.

Yet earlier this month the fragrant Frenchwoman was lovingly profiled by German magazine Der Spiegel in an article that included the comments of Wolfgang Schäuble. "She can do as she pleases with anyone," gushed the German finance minister. "And the things that she shouldn't do she would never do in the first place. The French can be proud of her."