It has been a long, wearying weekend that the world's most powerful financial officials will likely live to regret. This was the moment when they peered into the abyss of global financial cataclysm — and then decided to take a step closer to the edge. It may yet live in infamy.

With the eyes of the world upon them and the bedrock of the global financial system crumbling under their feet, finance ministers from the big Western economies decided that this was the ideal moment to show resolve only to remain irresolute; to decide only to stay undecided. It is the mother of all bungles.

The world and its economic leaders last gazed, terrified, at impending economic catastrophe on the present scale ahead of the Great Depression of the Thirties. Then, as now, they bungled the pressing call for determined and concerted action. In the summer of 1933, as economic events spiralled out of their control, governments met in London to agree a response. The meeting collapsed and so, too, did the global economy. The American and German economies were to shrink by 50 per cent and unemployment across the developed world soared to almost a third of the workforce, remaining in double-digit percentages throughout the next decade.

We do not — yet — confront such disaster, yet the contrast between the result of the past weekend's crisis meetings in Washington and what might have been is telling. After the failure of 1933, it took another decade of economic trauma for the West to be galvanised into action. In 1944, the Bretton Woods Agreement created a coherent system of global economic co-operation that provided the foundations for two decades of lasting recovery and unprecedented prosperity.

After Bretton Woods, John Maynard Keynes, who led the talks, said: “All of us here have the greatest sense of elation. All in all, quite extraordinary harmony has prevailed. As an experiment in international co-operation, the conference has been an outstanding success.”

There was no trace of elation on the drawn faces of finance ministers and central bank governors after the past weekend's unedifying efforts in Washington.

A veneer of harmony — in the form of a statement from the Group of Seven (G7) leading Western economies that staked out a co-ordinated set of agreed principles for tackling the turmoil — merely papered over the failure to produce tangible, immediate measures to end the mayhem.

The principles ticked the right boxes on the policy steps that governments must take: bolstering the solvency of the global banking system; restoring liquidity to end the paralysis of markets for lending between the banks; reassuring bank depositors with appropriate guarantees of their deposits; and acting through a co-ordinated, if not collective, approach.

This was necessary but far from sufficient. It leaves the fate of the Western economies hanging on bit-by-bit national measures based on these relevant but vague principles. That falls far short of the concrete and coherent global strategy that was needed from the past weekend and still carries the clear danger of allowing the consequences of the steps taken nationally to spill over countries' borders in a destabilising way.

It is said that there are three kinds of organisations: those that make things happen, those that watch things happen - and those that wonder: “What happened?” Over the weekend the G7 put itself in the second category. It may well end up in the third in only a few days.

Why has this drastic failure of leadership happened? The causes seem to come down to a dismal combination of caution, cowardice and incomprehension. Astoundingly, some, though not all, of the big players seem yet to grasp the compelling urgency of events, nor are they diagnosing correctly the threat that the world confronts. In Europe, in particular, some countries and their leaders continue to engage in a finger-pointing blame game, looking to the United States with a sense of misplaced Schadenfreude while muttering “J'accuse” under their breath.

This is not only counterproductive but also wholly misunderstands the roots of the global emergency. Sure, the folly of US sub-prime mortgages — lending to poor Americans with inadequate resources - was a catalyst for the crisis. Granted, Washington's decision to allow Lehman Brothers to collapse and pay the price of its own recklessness inflamed events and hastened the moment of maximum danger that we face today.

Yet these shattering events were only symptoms, not the ultimate source, of where we are now. The roots of the crisis can be traced back well beyond American banks' dodgy lending to, at the heart of the issue, a decade or more in which a global tide of extraordinarily cheap money fuelled a credit binge across the West, inflating the financial bubble that is now bursting with such calamitous results.

Deeper still, that deluge of liquidity and its results were created by vast imbalances in the global economy alongside lax monetary policy that the G7's leadership spent the decade debating, and pledging to end, while opting to do little or nothing in practice. Now, having sown the fair wind of all that cheap money, they are reaping the whirlwind of economic disaster. Finger-pointing in these circumstances is as irresponsible as it is puerile.

However, there still is hope and, curiously, it comes from Britain. The bold crisis plan assembled by Alistair Darling and Mervyn King, the Governor of the Bank of England, to take ownership stakes in the UK's banks, “recapitalising” the banking system while moving to unfreeze markets with a temporary guarantee for banks' fundraising, is rapidly being accepted as the only effective cure for a worldwide economic affliction that could otherwise prove terminal.

If other nations follow suit, swiftly and collectively, full-scale meltdown may yet, just, be avoided. That will not prevent recession across the West, and perhaps the globe, but it should stave off slump and a new depression. In 1923, as the Depression loomed, Keynes cautioned: “Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past, the ocean is flat again.”

This is not the time for bland reassurances that we will get through this storm and return to plain sailing. It is a minute to midnight. The time to act is now.

gary.duncan@thetimes.co.uk

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