Dire warnings about Europe's future may be a tactic to bring the crisis to a head. Jessica Irvine considers the likely impact in Australia, where nerves are already jangling.
They say the night is often darkest just before dawn.
The past two weeks have seen a dramatic rise in attempts by world economic institutions to turn out the lights on dithering European leaders trying to solve their debt crisis.
The language has turned dark, with warnings from the head of the International Monetary Fund, Christine Lagarde, of a ''1930s moment'' if excessively austere budget policies kill growth.
These are ''perilous'' times, we are told. Fear stalks the land. There is rallying talk of the need for a ''firewall'' to protect nations. No, this is not some Harry Potter sequel, but real life.
''This is really truly one of the scariest moments in my financial life,'' the finance analyst Satyajit Das confided on National Public Radio this week. And his financial life spans 34 years working in and observing finance markets. In a paper titled The Road to Nowhere, he writes: ''Europe resembles a zombie economy, which functions in an impaired manner with periodic severe economic health crises. The risk of a sudden failure of vital organs is uncomfortably high.''
The chief economist at J.P. Morgan, Stephen Walters, interprets the recent dire warnings as a deliberate, high-stakes gamble to bring things to a head. ''I think it's a game really. I think the language, particularly out of the IMF, has been quite alarmist, talking about downward spirals and 1930s-type circumstances. Maybe the game is, the more urgent you make things sound the more likely the politicians in Europe, who are I think the target of the language, [will] actually do something.''
But the risk is that consumers and business globally become overwhelmed at the incessant gloom and doom, dive under their covers and create the sort of economic downturn of which economists are warning. As the IMF wrote this week: ''The current environment … provides fertile ground for self-perpetuating pessimism.''
According to Walters, there are clear signs Australian nerves have already been tested. ''The press are quite rightly reporting all of this stuff and it's getting on the front page of newspapers and on the commercial television's nightly news,'' he says.
''People are worrying about their house price, they're worrying about their business. They're seeing the names of countries they know, like Ireland and Spain. I think it's really front of mind. We don't want to be self-fulfilling here and talk ourselves into it.''
Domino Threat
So what is going on in Europe? Essentially an experiment by 17 nations to adopt a single currency and single central bank, the European Central Bank, is being sorely tested by the profligate ways of some member countries. The relatively small nation of Greece - which accounts for just 2.5 per cent of the economic output of the euro zone - is the focus of attention thanks to its high government debt and adventures in creative budget accounting.
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