You're reading: G20 to press Europe for lasting crisis fix

World leaders were set to pile pressure on Europe at a G20 summit on June 18 to outline a lasting strategy to save the euro currency after a victory for pro-bailout parties in a Greek election failed to calm financial markets.

U.S. President Barack Obama spoke with European leaders
after the Greek vote and requested a meeting with them on June 18, underscoring the extent of concern in Washington that
the euro crisis could deepen, infecting the fragile U.S. economy
only months before an election.

He will also hold separate talks with German Chancellor
Angela Merkel, who as the leader of Europe’s biggest economy,
faces enormous pressure to take bold new steps to resolve a
crisis that has been raging for more than two years.

Protected by Mexican navy vessels and troops on the beaches
and highways, Group of 20 leaders from major industrialized and
developing economies, representing more than 80 percent of world
output, began a two-day meeting in this Pacific resort to
prioritize growth and job creation against the backdrop of a
weakening global economy.

Escalating violence in Syria and the near-collapse of a
United Nations-brokered peace plan also will be in focus when
Obama meets with Russian President Vladimir Putin on the
sidelines of the summit on Monday. The two super powers are
clashing over arming Syria and U.N. sanctions.

But Europe’s progress toward lasting solutions for its debt
crisis will be the focal point when G20 leaders hold their
opening session 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.

The euro fell from a one-month high against the dollar and
Spanish bond yields shot above 7 percent to their highest level
since the creation of the single currency in 1999.

British Prime Minister David Cameron, who runs the biggest
European economy outside the euro zone, was poised to warn
leaders from the currency area that they faced “perpetual
stagnation” without bold new measures and to call on central
banks to protect the global economy.

“We cannot afford for central banks around the world to
stand on the sidelines if we are to deliver the growth we need,”
Cameron was to say, according to extracts of a speech.

“It is becoming increasingly clear in the euro zone that the
core, including the ECB (European Central Bank), must do more to
support demand and share the burden of adjustment.”

MERKEL IN FIRING LINE

Merkel, who touched down in Los Cabos in the early morning
hours of June 18, faces intense pressure to take stronger action but
has rejected calls for joint euro zone bonds and the creation of
a “banking union” in Europe with cross-border deposit
guarantees.

Germany has sent signals it could be open to giving Greece a
bit more time to get its deficit under control, but it is not
budging on the substance of strict budget cuts and structural
reforms that Athens has pledged to implement in exchange for two
successive EU/IMF bailouts worth a combined 240 billion euros.

That could put Merkel on a collision course with the winner
of the Greek vote, Antonis Samaras, who campaigned pledging to
renegotiate elements of the rescue and reiterated that stance on June 18.

“We will simultaneously have to make some necessary
amendments to the bailout agreement, in order to relieve the
people of crippling unemployment and huge hardships,” he said.

David Mackie, an economist at JP Morgan, said he expected
European governments to 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.

Merkel has said repeatedly that there are no quick fixes to
the crisis and is instead 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.

But her counterparts, notably new French President Francois
Hollande, have doubts about transferring powers over fiscal
policy, and it appears unlikely that Europe will deliver a
“grand bargain” that reassures markets at a separate summit of
EU leaders on June 28-29.

World Bank President Robert Zoellick called it “an
absolutely critical time” and warned Europe not to squander this
opportunity for decisive action.

“We are waiting for Europe to tell us what it is going to
do,” Zoellick said on June 17 at a business meeting on the
sidelines of the G20 summit.

“The danger we’re creating is the danger of policymaking
that is increasing uncertainty and making markets more nervous,
which has a negative feedback loop.”

Europe’s debt crisis has underscored the need for a bigger
war chest at the International Monetary Fund. Leaders are set to
confirm they will double the IMF’s firepower with an extra $430
billion in loans even though some emerging nations are
frustrated with the slow pace of winning more power at the
global lender.

The G20 leaders are also expected to adopt a Los Cabos
Action Plan, pledging to promote economic growth and jobs,
investing in infrastructure and promoting trade, while sticking
to its pledges to bring down budget deficits.