Peggy Hollinger in Aix-en-Provence

Bail-outs of the world's banks pose a threat to free trade, warned Pascal Lamy, head of the World Trade Organisation (WTO).

"There is a danger that the finance industry will be on the side of the forces of deglobalisation," he said in an interview with the Financial Times. The government bail-outs had "constrained risk-taking" outside the familiar territories of national markets and this was already affecting foreign direct investment (FDI), now forecast to fall 50 per cent this year. "If there is less FDI there will be less trade," Mr Lamy said.

Speaking from the annual conference of France's Cercle des Economistes in Aix-en-Provence, Mr Lamy said he planned to attend this week's Group of Eight (G8) summit of world leaders in Italy to urge governments to resist growing pressures for protectionist measures and to keep the channels of trade open in finance as well as industry.

The WTO head warned that free trade faced its severest test, with protectionist pressures poised to rise. "I am convinced the worst is yet to come," Mr Lamy said. "The real stress test is for the future when the shrinking of economies translates into unemployment and social hardship and that translates into a political reaction that could influence trade policy. The toolbox for protection is a wide one." Mr Lamy said governments had to "keep pushing back" against populist protectionist pressures. "We know it is a terrible disease at the end of the day," he said.

The WTO last week sounded an alarm about a rise in trade barriers in spite of a pledge by governments around the world at April's Group of Twenty (G20) meeting in London to resist protectionism. Although there had as yet been "no major" protectionist breaches, Mr Lamy warned that the only way to revive global trade was "to keep trade open". The WTO forecasts a 10 per cent fall in global trade volumes this year. He said governments needed to commit themselves to completing the Doha round of trade talks, already eight years in the making. New administrations in India and the US - which have clashed over the special safeguard mechanism to protect poor farmers - had given a difficult process new impetus, he said. "Getting the final agreement may be complex but in both cases they have given the feeling that they are back at the negotiating table." An agreement could be reached within the next year, he said. Some of France's most influential economists and business leaders warned that governments were in danger of declaring far too early that the global crisis was over. Too much optimism, too early, could damp the political will for deep reform of the financial system, according to a statement from the Cercle des Economistes.

"If new frameworks for negotiation on all the subjects of international tension are not found, we cannot see a recovery in the global economy for several years," the statement said.

In spite of indications from organisations such as the Organisation for Economic Co-operation and Development (OECD) that the recovery has begun, industrialists at the conference said they had not yet seen any green shoots in western developed countries.