Economic crisis is inevitable and it will get worse

The G7 financial leaders are holding conferences by telephone today as they try desperately to get a grip on market confidence after the US was downgraded to an AA+ credit rating for the first time in modern history.

The group may call a full emergency meeting – and UK chancellor George Osborne is said to be preparing to return from his summer holiday to take part, if it goes ahead.

Meanwhile, the European Central Bank is holding emergency talks today on how best to contain turmoil spreading through the world's financial markets. The ECB is split on the issue of buying Italian debt to help calm the situation.

The US downgrade, by respected agency Standard and Poor's – one of the 'Big Three' credit rating agencies – has sent shockwaves around world since it was announced on Friday. But many commentators see it as just another symptom of a deeper problem.

Things can only get worse. In the Sunday Telegraph, Peter Oborne paints a catastrophically bleak picture. "Wake up," he writes, "the Eurozone is very close to collapse. It will come as no surprise if some Italian and Spanish banks are forced to close..."

2011 could be a turning point as significant in history as the Wall Street Crash of 1929 or Black Wednesday in 1989. Unlike in 2008, Oborne says, Europe's financial leaders lack the tools to contain the current crisis. National debts have risen - partly because of the bail-out of banks back then - and interest rates cannot be slashed any lower than they already are.

"Where does this leave Britain?" asks Oborne. Well out of it, seems to be his answer: thank goodness we didn't join the Euro. Now all George Osborne has to do is hold steady on the austerity measures and the UK will "survive".

Step forward Gordon Brown - either the greatest chancellor of modern times or the author of all our current misfortunes, depending on who you listen to (or when they were speaking) - to remind us in an article for the Independent on Sunday that it was he who said no to the Euro.

Europe is burying its head in the sand, says Brown, for "since the early days of the crisis, it has suited European leaders to believe that theirs is a fiscal crisis confined to the weaker states". All of the measures the G7 will debate are too little, too late – because the economic malaise is bigger than the problems in Greece or Italy.

Europe must stop "looking inwards" and instead look "outwards to export markets in the eight fastest-growing economies (India, China, Brazil, Russia, Indonesia, Turkey, Korea and Mexico)".

"The key to achieving sustained growth is... radical capital-product and labour-market reforms to equip the euro area for global competition," he concludes.

There's nothing we can do. Matthew Parris, in the Sunday Times, sees the turmoil as a "spasm" in a broader – and inevitable – decline in affluence and influence of Western Europe.

He writes: "Democratic pressures on Western governments to keep their voters getting richer and to bloat public spending may have fed into state encouragement of crazy borrowing, private as well as public.

"Global banking crises may in part be the consequence of trying to maintain the dividend - national prosperity - even while the profits are falling: leading to sudden, violent, catch-up corrections. And if that's true, then the longer, gentler tragedy of our relative Western decline may be a root cause of this more immediate spasm." ·