World leaders struggle to respond to euro crisis
French President Nicholas Sarkozy greets President Barack Obama upon arriving at the G20 summit in Cannes, France, Thursday, Nov. 3, 2011. AP Photo/Susan Walsh
CANNES, France — World leaders’ efforts to help Europe with its debt troubles have been paralyzed by uncertainty over Greece’s political convulsions and doubts over whether Italy will enact economic reforms designed to save it from financial disaster.
European leaders had meant to use the summit of the Group of 20 leading economies in Cannes, France to get foreign powers like China to help with the debt crisis that has rocked the eurozone for the past two years and threatens to push the world economy into a second recession.
But the foggy situation in Greece — where Prime Minister George Papandreou hopes the opposition will support an unpopular bailout deal — and a lack of details on the eurozone’s tools to keep the debt crisis from spreading, meant all negotiations were put on hold. Europe was simply not ready yet.
“The first thing is for Europe to get its act together so we have a clear picture of what Europe is proposing,” Mac Maharaj, spokesman for South African President Jacob Zuma, told The Associated Press. “We are very interested in a solution and we believe the solution is overdue.”
Whether such a solution would be found in Cannes was questionable on Thursday.
One way some countries want to boost confidence is by boosting the resources of the International Monetary Fund.
“There is a broad view amongst G-20 leaders that there does need to be additional IMF resourcing,” Australian Prime Minister Julia Gillard said Thursday night. “Leaders recognize that it is an appropriate move … so people could be reassured.”
The United States, however, maintained its position that the IMF should use its existing resources and leverage them for best use, according to Ben Rhodes, a deputy national security adviser. The U.S. is the fund’s largest stakeholder.
A draft declaration being discussed by the leaders lays out ways in which countries rich and less rich should stabilize the world economy and achieve more balanced growth.
The document — if confirmed at their last day of meetings Friday — would commit Italy to adopting a rule by 2013 on balanced budgets, and to quickly follow through on promised reforms.
It says developing economies would commit to policies to encourage domestic demand, and the U.S. would pledge near-term measures on tax reforms, jobs and debt reduction to keep the economic recovery from turning sour.
President Barack Obama, sidelined at the summit by the focus on Europe, implored European leaders to swiftly work out details of a rescue plan, aware of the political fallout back in the United States if they fail.
Both French President Nicolas Sarkozy and German Chancellor Angela Merkel said that Europe needed to come up with a credible strategy to restore confidence in their plan to save the euro, presented just one week ago but undermined by the political turmoil in Greece. The leaders failed, however, to spell out how they could make progress as they themselves struggled to make sense of what was going on in Athens.
Sarkozy called Papandreou’s decision to scrap a referendum on the rescue deal and instead aim for opposition support “interesting,” while Merkel told journalists that it was still not clear to her how exactly Athens would back the deal.
Last Thursday, eurozone leaders delivered what they said was a comprehensive response to the crisis. They reached a deal with banks to forgive Greece 50 percent of the money it owes them, while they promised Athens an extra €100 billion ($138 billion) in rescue loans.
They also pledged to strengthen banks across the continent and to boost the firepower of their bailout fund to as much as €1 trillion ($1.4 trillion). A stronger bailout fund is crucial because it would protect large economies like Italy and Spain, which are too big to be rescued, from needing financial aid.
But a week later, the deal was already in danger of falling apart.
In Greece, the second rescue program hinges on support from the opposition, which has so far refused to back Papandreou.
Boosting the bailout fund, meanwhile, depends on investors from outside the eurozone to contribute money and, equally important, on struggling countries like Italy in Spain to convince the rest of the world that they can stabilize their economies.
Italian Prime Minister Silvio Berlusconi once again found himself under particular pressure as his government failed to come up with a clear and fast growth plan.
The leaders of Germany and France and top officials from the EU, IMF and ECB held a third emergency meeting on the sidelines of the G-20 summit planned for Thursday night to discuss the situation.
They expect Berlusconi to make clear that “the measures by Italy have not only been announced but will actually be implemented,” said a European official, speaking on condition of anonymity ahead of the meeting.
Until there is a clear commitment from Italy, the rest of the eurozone is reluctant to finalize the overhaul of their bailout fund, which will give it the power to insure investors against a first round of potential losses on bonds issued by shaky countries.
The details of this overhaul, in turn, are necessary to attract extra funding from non-eurozone actors such as the IMF and strong emerging market economies like Brazil, Russia, India, China and South Africa, also known as the BRICS.
“We are not in a position to make that sort of commitment until we have a clearer idea of the content of the European proposal,” said South Africa’s Maharaj. Similar sentiments were also expressed by officials from China and Japan ahead of the talks in Cannes.
Russian President Dmitry Medvedev said he hoped to be able to offer something to the eurozone. But he called Greece’s seesaw politics “extravagant” and said they caused “headaches” for the G-20 leaders.
