( CNN ) -- After two years of denial about the European periphery 's solvency problem , European policymakers are finally , grudgingly , facing reality . They are recognizing that Greece is almost certain to default by year-end . And they have concluded that it is imperative to recapitalize Europe 's banks and to erect an effective `` firewall '' around Spain and Italy to reassure markets that if Greece defaults , the crisis will be contained there . But it remains to be seen whether this recognition will be translated into credible and effective measures by the time of the scheduled November 3 G-20 Summit . If past performance is any guide , one has to wonder whether this will be yet another doleful instance of domestic political constraints , especially in Germany and France , resulting in a `` too little too late '' European policy response to an ever deepening crisis . How deep ? Greece 's International Monetary Fund adjustment program is in tatters . The IMF itself is now acknowledging that Greece 's economy , which has already contracted by around 12 % since 2009 , will contract meaningfully further in 2012 . And the IMF is also recognizing that Greece will not meet the IMF 's budget targets for 2011 and 2012 . As a result , Greece 's public-debt-to-GDP level will soon rise to 172 % , or more than twice the level that might be considered manageable . As if to underline how unsustainable is the Greek situation , in the midst of the deepest of domestic recessions , the Greek government is now being required by the IMF to undertake further painful fiscal adjustment measures to meet its ever elusive budget deficit targets . Not only is the IMF insisting that Greece introduce an unpopular property tax , but it is also asking a Pan-Hellenic Socialist , or PASOK , government whose very existence depends on public sector patronage , to cut public wages and to reduce public employment . Little wonder that social and political tensions in Greece are now on the boil . The IMF is acknowledging that the Greek government will need more funding to finance its 2012 budget deficit . This is inducing the IMF to seek substantially greater debt reduction from Greece 's bank creditors through the `` voluntary '' debt exchange . As might be expected , the banks are resisting the IMF 's proposal , and this could complicate the IMF finalizing its intended program review by mid-November . Mindful of the 2008-2009 Lehman experience , European policymakers are fully aware that a Greek default could cause real contagion to the rest of the European periphery . They are particularly fearful that a Greek default could engulf Spain and Italy , Europe 's third and fourth largest economies respectively , which would pose an existential threat to the Euro . But despite these perceived risks , and reflecting domestic political constraints from electorates opposed to further bailouts , European policymakers seem to be in no rush to put a credible firewall in place . In particular , they have yet to come up with a concrete proposal to leverage up the European Financial Stability Facility -- the euro zone 's temporary bailout fund -- from its present size of EUR 440 billion ( $ 600 billion ) to the EUR 2 trillion range ( $ 2.8 trillion ) , that most market analysts think would be needed to shield Spain and Italy from the fallout of a hard Greek default . And responding to increased banking sector strains that both the IMF and the European Central Bank fear could tip Europe back into recession , European policymakers are proposing a coordinated European effort to recapitalize the European banking system . However , they have yet to come up with concrete proposals as to how they will increase the European banking system 's capital by the EUR 200 billion ( $ 267 billion ) that the IMF estimates would be necessary to put Europe 's banks back on a sound footing . Public differences between the French and the German governments on who should pay for the bank recapitalization are not encouraging . The late MIT economics professor Rudi Dornbusch famously said that in economics things take longer to happen than you think they will , and then they happen faster than you thought they could . Hopefully , European policymakers will now recognize that in Greece we are all too likely to be in `` the faster than you thought they could '' phase of the crisis . For if they do , we might dare to hope that they will act expeditiously in constructing an effective firewall -- recapitalizing their banks in a manner that will spare us from a Lehman-style crisis when Greece defaults . The opinions expressed in this commentary are solely those of Desmond Lachman .
Desmond Lachman : European policymakers finally facing likelihood of Greek default . He says they know they must recapitalize Europe 's banks to stop `` contagion 's '' spread . He says action difficult politically , bailout unpopular , so they have not taken any concrete steps yet . Lachman : Policymakers must act to create `` firewall '' to prevent Lehman-style crisis .