The G-8 countries met at Camp David in the United States yesterday with economic issues such as energy, debt, food security, bank regulation and trade topping their agenda.
The security matters will be dealt with in greater detail at the NATO summit which follows in Chicago today and tomorrow.
Naturally, focus was on the impending debt default of Greece and its possible exit from the Euro currency system. The Europeans are determined to forestall the economic implosion of Greece, even though its relatively small size does not constitute a systemic threat to banks in the European Union or to the Euro.
However, the economic collapse of Greece could be the catalyst for a domino effect on the membership of the European Union. Such an economic demise would be a salutary warning for those complacently holding Greek debt on the assumption that they are safe because of moral hazard. It could also scare those exposed to Italy and Spain because they would now worry that if the G-8 and the EU could not or would not save Greece, what would happen to countries requiring a larger rescue package?
The G-8 meeting of sick old economies finally acknowledged in economic intent and nomenclature the message that the social limits of austerity have been reached or exceeded and the strategy for economic recovery must be to promote economic growth.
Economic austerity, while prudent, can be counterproductive. US Treasury Secretary Timothy Geithner warns of "a negative spiral of growth-killing austerity". Economic adjustment may be unavoidable, but the pace and the distributive aspects must be moderated and designed to be socially bearable.
Recent elections have sent a clear political message that austerity, as currently conceived and applied, is not acceptable. The political disarray and truculence are indicative of this mood and so is the victory of Monsieur Hollande in France.
Economic distress was also a factor in the defeat of incumbents in Jamaica, St Lucia and The Bahamas. Economic hardship was reflected in the defeat of the Cameron-led coalition in local government elections in Britain and the fact that the Government in Guyana does not have a majority in Parliament.
The dilemma for countries like Jamaica that knew that growth is to be preferred to austerity is the "double standard" of the developed countries which, while giving themselves new latitude, continue to admonish developing countries to commit to severe austerity.
These countries need to communicate this new, more humane and politically viable approach to adjustment to the International Monetary Fund and to their representatives on the boards of the institutions which provide programme-lending in support of counter-cyclical policies, eg, the World Bank and the Inter-American Development Bank.
The conditions for adjustment with a humane face entail embedding economic policy within a framework of what is socially tolerable and politically manageable; rejecting the one-size-fits-all approach; ensuring that the adjustment policy enjoys the support of the majority of the population which will endure the hardships and the consensus of the business community; and a clear strategy of adjustment which shows that we know where we are going and how we will get there. This is critical to the mobilisation of external financial support.
Local and foreign audiences await the rollout of the strategy which must be the gravamen of Dr Peter Phillips' Budget speech.