Humpty-Dumpty at the G-20: Can Europe put itself together again?

The Group of 20 summit on the swanky Riviera was supposed to showcase French and European élan. Instead, it became another emergency session on the European debt crisis, whose import is steadily rising.

As Europe struggles to stop the euro crisis now roiling Greece from spreading more catastrophically to Italy, it seems at times more like Humpty Dumpty than Superman.

Its decisionmaking appears built for good times, not bad, analysts say.

Its leaders have relied on short-term measures that have prolonged and arguably compounded a two-year crisis that is hardly over and has sapped time and energy for other constructive projects.

At the G20 summit, for example, many broader issues of global hunger, climate change, and unemployment got sidetracked.

"If 17 countries with shared history and cultures and values can't solve a problem the size of Greece, how are they going to solve problems of a bigger dimension?" asks Sony Kapoor of the Brussels think tank Re-Define. "Last year, there was still a rather limited economic problem and ample political space for the EU to deal with it.... Every delay since has created an economic worsening and shrinking political space ... and now the political situation has soured beyond belief."

Whether all the king's men can put the eurozone together again is becoming a dire question for America's main ally in an interconnected world. It will test whether the European Union will fly apart or come more strongly together, reforming its political and economic mechanisms.

To be sure, the depth of the problem was not seen at first, analysts say.

There has been no clear-cut "Lehman Brothers moment" or cataclysm. Irish banks passed muster just months before Ireland needed a bailout in 2010; no event seemed to necessitate a fire wall around either Spain or Italy, Europe's third-largest economy, whose debt is now 120 percent of gross domestic product.

But in the midst of Europe's worst disarray in 60 years, its leaders are criticized for not outflanking market attacks on weak states with sovereign bank debt, and for doing only enough to stave off immediate problems.

"Markets have driven the political process in Europe for 16 months," says Thomas Klau of the European Council on Foreign Relations in Paris. "People are fed up and exhausted, but it isn't over."

A bailout deal to end all deals

On Oct. 26 matters came to a head, or so it seemed. A great bailout deal to end all deals was to be struck in Brussels.

After nearly 11 intense hours that stretched into the next morning, a three-part strategy emerged, finagled by German Chancellor Angela Merkel. It spoke of a 50 percent write-off of Greek bank debt and a new bailout for Greece. As EU leaders walked out on a red carpet to waiting limousines, victory was nigh.

At least, that was the official story.

But on Oct. 31 Greek leader George Papandreou called a national referendum on the proposed €130 billion bailout. Its terms are hated in Greece, where it's seen as hitching the nation to decades of German-dictated austerity.

World markets toppled. Mr. Papandreou had the riot act read to him by Ms. Merkel and French leader Nicolas Sarkozy, who demanded an answer now: Does Greece wish to stay in the eurozone? The choice was so fateful that the Greek finance minister rebelled, and Papandreou backed off.

As the G20 meeting commenced, Italy's borrowing costs reached 6.3 percent – close to unsustainable. The atmosphere of market volatility was also sufficient to scotch $4 billion in EU bailout assistance to Ireland.

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