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G20 gears up to tackle European debt crisis

Date: Monday 18 Jun 2012

The level of tension has dropped prior to the G20 summit to be held starting today in Los Cabos, Mexico, as markets and world leaders got some relief after pro-bailout parties were pronounced victorious at the elections in Greece over the weekend.

The European debt crisis has long been the principal theme on the agenda for the meeting of the world’s most advanced economies that includes 19 nations and the European Union which together represent around 90% of global GDP, 80% of global trade and two-thirds of the world’s population.

EUROPEAN DEBT CRISIS IS MAIN TOPIC ON AGENDA

Thus, the european debt crisis accounted for a major portion of the Mexican president Felipe Calderón’s preview speech on the G20 (Mexico holds the G20 presidency this year): “One matter of particular concern is, of course, the crisis in the Eurozone,” he said, “which, despite recent efforts, has yet to be resolved and is still a source of concern for the global financial system as a whole.

“The crisis in Europe affects the entire world economy, which is why, during the upcoming summit, the Mexican Presidency will strive to ensure that an integral, comprehensive, long-term plan of action is adopted. In other words, it will not only include measures for coping with and resolving the European crisis which, in the last analysis, is a temporary crisis, but will also propose specific public policy measures in key areas, in political, fiscal, financial and monetary areas that will promote long-term global growth and maximize job creation, a common goal of all countries.”

In a recent joint-statement, both European Commission president José Manuel Barroso and European Council president Herman Van Rompuy agreed with Calderón as they stated that “the euro area will be an important issue for discussion at this year's G20 Summit.

“We will bring to bear the EU's determined action to deliver a comprehensive response to the sovereign debt crisis: addressing the challenges of vulnerable countries; supporting growth through structural reform and differentiated and growth-friendly fiscal consolidation within the European Semester; strengthening euro area financial firewalls; funding and recapitalising banks; and strengthening economic governance in the euro area. We will reaffirm to our G20 partners our commitment to safeguard financial stability in the euro area and its integrity.

“We will also make clear that we want Greece to remain in the euro area while respecting its commitments.

“Finally, we will inform our partners of the work we are undertaking to further strengthen and deepen our economic union to match our monetary union.”

The EU is facing mounting problems on a global scale but Chinese president Hu Jintao suggested that the G20 should address the European debt crisis in a “constructive and cooperative way” and “encourage and support efforts made by Europe to resolve it and send a signal of confidence to the market.”

EUROPEAN LEADERS ARE CRITICIZED

But outgoing World Bank president Robert Zoellick took a much harsher stance: “European politicians always act a day late and promise one euro too little. Then, when it gets tight, they add new liquidity,” he scolded in an interview published yesterday in Der Spiegel.

Zoellick is not alone as OECD chief Angel Gurria also criticized the Eurozone’s handling of the crisis. “Europe has the means, the institutions, the vigor and the power ... but its will has not been transmitted in the correct way, because of the problems in the governance of its institutions,” he said.

LOW EXPECTATIONS

All in all, and as is usually the case, there are no expectations that the G20 comes up with some type of miracle cure, according to the Mexican presidency. “Even though we don't expect to reach specific agreements on Europe ... I want to see language and promises which are much more oriented to a new, stronger Europe: a Europe of the 21st century,” Calderón said.

Leading up to the event, Barroso and Van Rompuy will be holding a joint press conference this afternoon at 17:00 London time. G20 leaders are expected to arrive at the convention center at 20:45 with the first plenary session scheduled for three hours beginning at 22:00. The summit continues tomorrow with the adoption of the final declaration scheduled for 22:45 London time and a posterior message to the media from the president of Mexico expected at 22:50.

JM

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