The leaders of the world’s major powers yesterday sought to buy the global economy some breathing space at the G20 summit with new support for an IMF financial firewall and for Greece.
European leaders were relieved to be able to attend the summit after clearing the hurdle of Sunday’s pivotal Greek election, which gave parties that support Athens’ EU and IMF-led bailout terms a parliamentary majority.
The euro and Asian stock markets surged higher yesterday, amid cheers on trading floors at the Greek result, which saw defeat for a hard-left party that had threatened to reject the cuts enshrined in the deal.
Tokyo stocks jumped 1.77 percent, or 151.7 points, to 8,721.02; Sydney was 1.96 percent higher, or 79.6 points, at 4,136.9; and Seoul climbed 1.81 percent, ending up 33.55 points at 1,891.71.
The euro surged to morning highs of US$1.2727 and ￥100.86 before paring those gains to sit at US$1.2709 and ￥100.64. That was up from US$1.2644 and ￥99.47 in New York trade late on Friday.
Kenichi Hirano, operating officer at Tachibana Securities, told Dow Jones Newswires that the Greek election results were “a net buy incentive for stocks.”
However, he said that “Greece’s problems are far from over.”
Paul Mackel, head of Asian currency research at HSBC in Hong Kong, said: “There is still some room for disappointment to come in. This is a small bright spot and it could fade briefly.”
Spanish Prime Minister Mariano Rajoy held a teleconference with his British, French, German and Italian counterparts from his plane, saying on arrival: “I think what we are going to transmit is a message of confidence in the euro.”
US President Barack Obama, who was also due at the opening of G20 talks in the Mexican resort of Los Cabos, must also have breathed a sigh of relief — more economic turmoil could endanger his own chances of re-election.
Meanwhile, the BRICS bloc of Brazil, Russia, India, China and South Africa were expected to pledge tens of billions of US dollars in new loans to the IMF bailout fund at a meeting before the opening of the G20 summit.
Chinese Vice Finance Minister Zhu Guangyao (朱光耀) predicted the group would pledge at least US$60 billion and thus boost the firewall up to the IMF’s target of US$430 billion.
“China is confident that the IMF will realize its [US$]430 billion and China will pitch in,” Zhu told reporters as national delegations began to arrive at the luxury hotels lining the Los Cabos coastline.
The IMF fund will serve to backstop governments that are struggling to cope with debt repayments, but eurozone leaders will still face pressure from their G20 peers to make reforms to head off future financial crises.
World Bank president Robert Zoellick said that confusion over Europe’s debt battle plan had rattled bond markets and had undermined last week’s “wasted” bailout of Spanish banks.
“To take your Spanish example — it’s actually 100 billion euros, and to have that as being a negative story? It’s amazing. Why was it? It is because the delivery was extremely poor,” Zoellick said.
Eurozone powers agreed last week to provide a bailout loan of up to 100 billion euros to salvage Spain’s stricken banks, but the deal failed to quell the intensifying storm on the debt market.
The head of the Organisation for Economic Co-operation and Development said Europe had the resources to deal with the crisis, but must “take down the scaffolding” around EU institutions such as the European Central Bank.