Markets have taken another hit of hopium after Eurozone officials, along with the IMF, agreed on the terms of a new €130 billion Greek bailout.  Despite the fact that implementation risks abound, it’s the coming G-20 meetings in Mexico that have taken center stage. Global finance ministers will discuss increasing the IMF’s lending capacity while pressure mounts on Germany to agree on increasing funds to build a credible firewall in Europe.

European politics have now gone global.  Finance ministers from across the globe will be flying into Mexico City over the weekend in the context of the next G-20 meeting where the Eurozone’s sovereign debt crisis will once again be the center of attention.  The main points in contention: the building of a credible, and domestically funded, European firewall to reduce the risk of contagion, and the raising of the International Monetary Funds’ lending capacity.

With Europe officially in a “mild recession,” as the EU’s vice-president for economic and monetary affairs Olli Rehn made clear on Thursday, doubts over the sustainability of recent market stability point toward the need for a larger firewall that counts with enough firepower to ring fence any potential contagion.  Pressure has been mounting on European policymakers to combine the current emergency fund, the EFSF (which still holds €250 billion in unused funds) with the coming European Stability Mechanism (ESM) to create a €750 billion firewall.                       More