When the leaders of the G20 met in Cannes in early November, the global economy was clearly on the threshold of, if not already well into, another major financial crisis. The need for action - fast, co-ordinated and effective - was more evident than ever since early 2009. Back then, the G20 did rise to the challenge by pledging reflationary policies all over the world.

Today's challenges, however, are probably greater, and one of the reasons is that the action taken in 2009 was inadequate. The global imbalances that were at the root of the crisis in 2008/09 were never adequately addressed. Worst of all, financial institutions were bailed out without sufficient regulation to stem their irresponsible behaviour. The result is a new banking crisis, which even the financial media misleadingly present as a sovereign debt crisis. This time, Europe is the epicentre.

Events in the eurozone cast major shadows over the G20 discussions, at times threatening to derail it entirely. The final declaration contains a lot of pious promises, but very little to back them up in terms of more money, new regulation or policy changes. The diplomatic wording does not really paper over the fundamental disagreement that characterised the meeting and is likely to become a feature of the world economy.

Desperate European leaders sought to persuade China, Brazil, Russia and other large holders of for-ex reserves to commit money for a proposed (and highly leveraged) European Financial Stability Facility to help eurozone countries under stress. The leaders of the emerging market nations, however, correctly pointed out that it would be hard to explain to their mostly much poorer peoples why they should pour money into a pot for rich nations that can afford to save themselves. They wanted to know why eurozone nations with balance of payments surpluses, such as Germany, the Netherlands or Finland, were not more willing to put more money where mouths were in order to save their own monetary union.

Soon after the summit, China and India issued a remarkable joint statement, noting that western countries need to ''adopt responsible macroeconomic policies to handle the issues of debt and financial stability properly''. This was a new and rather hectoring tone. Nonetheless, the statement was still rather vague. And some of the arguments India and China made in Cannes were not helpful either.

India fought against a Financial Transactions Tax that could pay globally for some important social expenditure. China criticised lazy and decrepit habits of advanced countries that cannot not pay for their own spending, blatantly ignoring that those very habits are the source of its own trade surplus. For similar reasons, Germany's insistence on austerity is self-defeating too. German exports have been boosted by deficit spending in the public and private sectors elsewhere.

It was remarkable that European leaders clearly put finance over democracy in their own continent. Developing countries, which have lived through the consequences of such choices with mostly unhappy outcomes over several decades, now see these policies being imposed in the west. Greek's Prime Minister George Papandreou was forced out of office after a humiliating rejection by EU bosses of his (admittedly belated) plan to put the austerity measures to a popular referendum. Italy's Silvio Berlusconi - who should have been ousted much earlier - was similarly ejected not by a democratic vote, but by pressure from the financial markets. In both countries, ''technocratic'' governments are now supposed to implement harsh measures, regardless of popular response.

The summit was a missed opportunity. The world needs a clear macroeconomic strategy for recovery, which would allow deficit countries to grow their way out of debt rather than get caught in austerity-induced downward spirals. Rather than finally rising to the challenge of properly regulating and restructuring the financial sector, the G20 leaders proved to be its servants. Shadow banking, derivatives and commodity speculation are still likely to reap havoc. The world economy is going to pay dearly for the failures of Cannes, perhaps sooner than we realise now.

* This article was originally published in the D and C, November 16, 2011.

November 18, 2011.