Italy needs a precautionary rescue of up to $700bn from the US and the major powers to head off the danger of a global crisis, a bail-out veteran from the International Monetary Fund has warned.

Ashoka Mody, the IMF’s former deputy director in Europe, said economic fall-out from the coronavirus is pushing Italy to the brink of “vicious negative feedback loop”, raising the risk of a financial chain-reaction through the international system.

A fully credible firewall would require funding of €500bn to €700bn, orders of magnitude greater than any previous package in history. “The Europeans can’t do it themselves. They’re hopelessly divided and financially much weaker than they were ten years ago. Their instinct will be to punt,” he said.

Professor Mody said Italy’s economy is large enough to trigger a broader world crisis if mismanaged at this critical juncture. The Italian government is being forced to take ever more dramatic steps as the death toll soars to 631, with dire consequences for small businesses and companies already struggling to stay afloat after an economic relapse last year.

On Tuesday Rome suspended all normal economic activity in Lombardy and the Veneto, with only pharmacies, food shops, and survival services remaining open.