G20 ramps up pressure on Europe over debt crisis

LOS CABOS, Mexico: World leaders pressured Europe on Monday to take
ambitious steps to resolve its debt crisis after a victory for
pro-bailout parties in a Greek election failed to calm markets or ease
worries that wider turmoil could derail the global economy.
The
world's major industrialized and developing economies were set to urge
Europe to take "all necessary policy measures" to resolve a crisis that
has now raged for over two years, according to a draft communique seen
by Reuters that was prepared for a Group of 20 summit in this Mexican
resort town.
U.S. President Barack Obama, concerned that Europe's woes could upend his re-election hopes, requested a meeting with its leaders on Monday evening.
Earlier
he met with Germany's Angela Merkel, who as the leader of Europe's
biggest economy is under intense pressure to mo ve faster on deeper
financial and fiscal union in the euro zone, b ut has so far resisted.
Obama's spokesman said the U.S. president was encouraged by the talks,
which touched on steps to "increase European integration".
In an
apparent response to concerns among investors that Europe's banks could
drag down entire countries, the euro zone members of the G20 would
break "the feedback loop between sovereigns and banks," the draft
communique said.
European officials hit back at the notion that
they were to blame for weakening growth across the globe, and played
down hopes for any quick miracle cure for the 17-nation euro zone.
"Frankly,
we are not coming here to receive lessons in terms of democracy or in
terms of how to run our economy," said European Commission President Jose Manuel Barroso.
Protected
by Mexican navy vessels and troops on sun-baked beaches and highways,
leaders from the G20 countries representing more than 80 percent of
world output began a two-day meeting to prioritize growth and job
creation against a backdrop of a weakening global economy.
The World Bank
last week lowered its forecast for global growth in 2012 to 2.5 percent
and said developing nations faced a long period of financial market
volatility and weaker growth.
In its strongest signal in three
years that it would act to strengthen the recovery, the G20 said in
their draft communique that countries without heavy debts problems were
ready to act together to spur growth, if the economy slows a lot more.
The United States has pressed Germany as well as China to stimulate spending in order to help the world economy.
Rising
violence in Syria and the near-collapse of a United Nations-brokered
peace plan was also in focus as U.S. President Barack Obama met with
Russian President Vladimir Putin. The two super powers have clashed over arming Syria and U.N. sanctions.
Obama
and Putin agreed that the violence in Syria has to end but offered no
new solutions and showed no signs of reaching a deal on tougher
sanctions against Damascus.
RELIEF RALLY FLEETING
Europe's
battle against a debt crisis that has led Greece, Ireland and Portugal
to seek EU/IMF rescues, and forced Spain to seek aid for its banks,
dominated the opening discussion of G20 leaders on the global economy.
A
narrow victory for the conservative New Democracy party in the Greek
election on Sunday eased concerns the heavily indebted country could
exit the euro zone soon but did little to calm financial markets.
After
an initial relief rally, the euro fell against the dollar and Spanish
bond yields hit a new euro-era high above 7 percent. European stocks
ended 1.2 percent lower.
Fitch Ratings agency said the Greek
result had lowered the risk of a disorderly default and the scenario of
a euro zone exit, but it also warned that any new government in Athens
was likely to be fragile.
"The win in Greece does not really resolve anything," said Boris Schlossberg, managing director at investment advisory firm BK Asset Management in New York. "It's still going to be tough for Greece."
Merkel,
speaking to reporters after landing on the southern tip of Mexico's
Baja California peninsula in the middle of the night, welcomed the
Greek result but said she could not accept any loosening of the
austerity measures and deep structural reforms Athens has agreed to as
a condition of its two EU/IMF bailouts totaling 240 billion euros.
"The Greek government will and must deliver on the commitments it has agreed to," she said.
That
puts her on a collision course with the winner of the Greek vote,
conservative Antonis Samaras, who campaigned pledging to renegotiate
elements of the rescue and reiterated that stance on Monday, saying
"amendments" were needed to relieve "crippling unemployment and huge
hardships" for Greeks.
Greece will ask to spread 11.7 billion
euros in austerity cuts over four years instead of two, a New Democracy
party source told Reuters in Athens.
German frustration with
Greece's failure to deliver on its reform pledges has risen in recent
months, as has Greek anger at the tough austerity prescribed by Berlin
and its partners.
In a twist of fate, Greece's soccer team will
battle Germany later this week in the quarter-finals of the European
championships.
David Mackie, an economist at JP Morgan, said he
expected European governments would ultimately be forced to agree to an
"aggressive restructuring" of the loans they have already provided to
Greece to return the country to a sustainable path.
"PERPETUAL STAGNATION"
Merkel also faces intense pressure to take stronger action for the broader bloc.
But
she has rejected calls for joint euro zone bonds and the creation of a
"banking union" in Europe with cross-border deposit guarantees,
dismissing these as quick fixes that are bound to fail and would be
rejected by German courts.
Instead, she is pushing fellow
European leaders to agree a road map toward closer fiscal integration
that would involve ceding sovereignty over budgets to Brussels and
giving more power to the European Parliament.
By sketching out what the bloc might look like in five to 10 years, she hopes to win back the confidence of markets.
But her counterparts, notably new French President Francois Hollande,
have doubts about transferring fiscal powers, and it appears unlikely
that Europe will deliver a "grand bargain" at a separate summit of EU
leaders on June 28-29.
In Los Cabos, leaders are set to confirm they will double the IMF's firepower. The Fund's managing director Christine Lagarde
said pledges now totalled $456 billion, up from the $430 billion in
April, even though some emerging nations are frustrated with the slow
pace of winning more power at the global lender.
China on Monday
offered to contribute $43 billion to the IMF's crisis-fighting
reserves, adding to offers of $10 billion each from Brazil, Russia and
India. - REUTERS