The world economic situation has, according to IMF boss Christine Lagarde, entered a “dangerous phase”.

Central banks from around the globe have promised yet another bailout fund to stop Europe’s banks running out of money....Although the financial markets have recovered (slightly), the respite is only temporary.....Greece is still likely to default on its debts, which are 160 per cent of its annual GDP.

All that remains to be settled is the timing. It will happen when Chancellor Merkel of Germany, President Sarkozy of France, Eurocrats in Brussels and European Central Bank officials in Frankfurt finally admit the iron law of capitalism: that markets are more powerful than the wishes of politicians.

Until a few days ago, whenever one of Europe’s economic basket cases went to the German government begging for money, it coughed up...But no longer..... There are two reasons....

First, Germany’s constitutional court ruled that parliamentary approval must be given for further bail-outs......Second, opinion polls – especially those taken among Merkel’s supporters – show approval for her policy has collapsed......Not surprisingly, therefore, Merkel is turning off the tap and ordering colleagues to be wary of mentioning the word ‘default’.