The leaders of the world’s major economies embarked on the final day of the G20 summit yesterday determined to kickstart growth and pull the eurozone back from the brink of disaster.
European members were under extraordinary pressure from their international counterparts to loosen the straitjacket of their austerity programs and to allow the European Central Bank (ECB) to open the lending floodgates.
And, beyond the summit conference center in the Mexican resort of Los Cabos, bond markets jacked up rates on Spanish and Italian debt amid self-fulfilling fears that the debt crisis that sank Greece was spreading once again.
German Chancellor Angela Merkel, the driving force behind the eurozone’s determination to privilege deficit busting over stimulus spending, has publicly stood her ground, although US officials say her position is softening.
A draft version of the G20 final statement, which was to be finalized and published by the leaders yesterday, suggested that a form of words would be found that would commit the leaders to a pro-growth agenda.
“All G20 members will take the necessary actions to strengthen global growth and restore confidence,” it said, vowing that eurozone members would safeguard the stability of the single currency in the face of volatile markets.
The version seen allowed no hint that Merkel or her allies might crumble and allow the ECB to pump out cash or to pool German debt with that of the weaker eurozone members to create low-interest eurobonds.
However, it contained a phrase that opened the possibility of more lending and spending if the European economy continues to struggle.
“Should economic conditions deteriorate significantly further, those countries with sufficient fiscal space stand ready to coordinate and implement discretionary fiscal actions to support domestic demand,” the draft reads.
Officials from eurozone countries also patted themselves on the back for remaining more or less united in the face of pressure from the US, emerging powers, Britain and a skeptical media.
EU Commission President Jose Manuel Barroso bristled at hostile questioning over why his rich continent needed so much support from abroad, declaring: “We are certainly not coming here to receive lessons from nobody.”
US President Barack Obama called for Greece to be given more time to get its affairs in order, after parties committed to honoring the terms of its debt write-down agreement won a majority of seats in Sunday’s parliamentary elections.
However, Merkel remained unmoved.
“Elections cannot call into question the commitments Greece made. We cannot compromise on the reform steps we agreed on,” she told reporters.
Progress was made in Los Cabos in boosting the resources available to the IMF to provide a firewall to protect debt-ridden states from the threat of default.
IMF Managing Director Christine Lagarde thanked emerging powers, led by China, for pledging enough to bring her pool for emergency loans up to US$456 billion in exchange for a greater say in IMF affairs.