LOS CABOS, Mexico – Next week’s G20 summit sees the leaders of the world’s biggest economies pursued by Europe’s debt storm all the way to the sunny Mexican Pacific resort of Los Cabos.
European Union chiefs, in particular Germany’s Chancellor Angela Merkel, will once again come under pressure to find a way to stabilize the eurozone’s finances and head off a collapse that could damage economies worldwide.
“All parties are convinced that the European side is capable of solving its own problems,” Chinese foreign ministry spokesman Liu Weimin said on Wednesday, as Europe nervously watched Greece prepare for a key new election.
G20 hosts Mexico would like to broaden the agenda but since 2008 — when the world’s biggest developed and emerging economies decided to hold regular talks — these summits have been dominated by economic crisis-management.
This year’s trip to Los Cabos is no exception. Angry and impoverished Greeks return to the polls on Sunday and may elect a government that will reject the terms of Athens’ bail-out package, destroying the EU rescue plan.
All eyes will be on Merkel and her EU colleagues, who are held responsible by some of their G20 partners for letting the crisis fester.
Clouds are also gathering over the big emerging economies that drive global growth.
Last week China cut its base interest rate for the first time in three years in order to boost growth, the clearest indicator yet that the motor of world manufacturing is losing steam.
Brazil saw growth sharply down in the first quarter and India — after a decade of near nine percent growth — saw its rate fall to less than six percent, not enough to combat poverty in its huge and growing population.
The world’s largest economy, the United States, is also failing to create enough new jobs, and a new economic slowdown there could undermine President Barack Obama’s hopes of re-election in November.
Deadlines come and go, but as the leaders set off for Mexico, the crisis was seen as coming to a head, three years after a banking crash mushroomed into a sovereign debt crisis in Greece, Ireland and Portugal.
The head of the International Monetary Fund, Christine Lagarde, warned this week that Europe has only three months to come up with a convincing strategy to save the euro from a messy break-up.
If it fails, Spain could be the next domino to fall. Despite being the eurozone’s fourth largest economy it was forced last week to accept a 100 billion euro bail-out, and even that failed to impress the bond markets.
European leaders would prefer to solve their problems among themselves at the next keenly-awaited EU crisis summit at the end of the month, but first they must endure the scrutiny of their G20 peers in Los Cabos.
Merkel will once again be the focus of concern for Washington and big emerging economies who want to see Germany loosen the budgetary straitjacket her deficit-cutting agenda has imposed on her struggling EU partners.
Berlin wants to clean up the balance sheets of heavily indebted eurozone members like Greece while seeking long term reform. Much of the rest of the world fears this will kill off any chance of growth before reforms bear fruit.
Merkel will certainly face extraordinary pressure to change course, but so far she has remained steadfast. She is, in any case, limited in her room to maneuver by Germany’s constitutional budget rules and German public opinion.
On Tuesday, Merkel said Germany was “ready to do more on integration” but insisted: “We cannot become involved in things which will — I am firmly convinced — lead to an even bigger disaster than we have today.”
“We are standing at a crossroads. It would be disastrous if certain countries that have begun to move in the right direction broke off and were left half-way,” she said, warning that reform “would take some time.”
Germany’s biggest eurozone partners, France and Italy, have also begun to urge Merkel to ease up on austerity. Los Cabos will be the first G20 summit for France’s new Socialist, pro-growth president Francois Hollande.
Diplomats in Paris said France would not be seeking allies from outside Europe to turn the screws on Berlin, but would seek an EU agreement.
Instead, European powers will pressure the emerging giants to stump up the cash they have already promised to create a 430 billion dollar firewall for the IMF to use as insurance against future financial disaster. – Agence France-Presse