Liam Dann: No one is laughing at EU farce

The cynics predicted that last Thursday's European mega-deal was so fragile that it would fall to pieces in weeks. They were wrong. It took only six days.

Myriad things could have gone wrong with the finely tuned agreement. For starters, European leaders don't have the €1 trillion ($1.73 trillion) bailout fund they've touted. They only have an idea of how they can create a €1 trillion fund. Then there are the jittery banks which agreed to take a 50 per cent haircut on Greek loans - but only on a voluntary basis. The banks also need to come up with about €100 billion to throw into the pot.

And there's Italy, Spain and Portugal, the other nations that needed to play ball on austerity measures.

The threat that the Greeks would derail this last lifeline was hardly considered. They, more than anyone, need this deal if they are to avoid a default. But derail it they have.

Greek Prime Minister George Papandreou has boldly put democracy ahead of pragmatism and demanded that the deal must be approved by his people in a referendum.

Now it looks like all bets are off. That's not to say the euro deal is dead. But it is looking a lot less likely to succeed.

Even if the deal is approved by the Greeks, the damage may already have been done. Markets have panicked and the cost of borrowing for debt-laden nations like Italy has spiked.

That means the underlying numbers in this debt crisis look worse now than they did when the deal was struck. It will put intense pressure on all the parties involved to stick to their part of the bargain.

Once again the world will look to a crisis meeting of world leaders for answers and reassurance - this time the weekend's G20 summit in Cannes. The leaders will again resolve to try and keep this deal intact.

As farcical as it all seems, a European meltdown threatens to throw the world back into recession.

It is already slowing growth and that is causing commodity prices to fall. The ANZ commodity index this week showed a 3.5 per cent fall in returns for New Zealand exports - the biggest monthly drop since 2009.

Fonterra has already cut its farmer payout forecast and Reserve Bank Governor Alan Bollard has warned the outlook for interest rates is very much dependent on the global situation. What happens in Europe is going to have a very real and direct impact on the economy here.