G20 leaders seek debt crisis solution
Under pressure from financial markets and anxious world leaders, Europe agreed to move towards a more integrated banking system to stem a debt crisis that threatens the survival of the euro.
At the G20 summit of the world's leading industrialised and developing economies in this Mexican resort, Germany and its big euro zone partners took the unusual step of spelling out in detail measures to complete the economic and monetary union they launched to great fanfare 13 years ago.
Among the commitments in a draft G20 communique was a pledge to consider concrete steps towards a "more integrated financial architecture" in Europe that would include common banking supervision and firm guarantees to repay bank depositors.
The United States, the International Monetary Fund and European Commission have been urging EU member states to press ahead with a banking union to break the vicious link between deeply indebted governments bailing out illiquid financial institutions, worsening the sovereign debt problems and deepening the euro zone crisis.
While that term did not appear in the declaration, the wording did suggest that Germany, which has rejected initiatives that might expose it to the cost of rescuing banks outside its borders, was growing more open to the idea of closer banking cooperation.
World Bank chief Robert Zoellick described the ongoing crisis as “the single biggest risk for the world economy”.
Despite the victory of a pro-euro party in Greece’s elections at the weekend, there was no announcement of the formation of a government in Athens, amid growing signs of impatience among other G20 countries.
“We are waiting for Europe to tell us what it’s going to do," said Mr Zoellick.
US president Barack Obama, concerned that Europe's debt crisis could deteriorate further and upend his re-election hopes, met with German chancellor Angela Merkel, who as the leader of Europe's biggest economy is under intense pressure to commit Berlin's resources to underpin the euro zone and prevent a catastrophic breakup.
Mr Obama's spokesman said the president was encouraged by the talks, which touched on steps to "increase European integration".
European Commission president Jose Manuel Barroso showed frustration over the pressure which is piling on Europe to act fast. He said G20 members must understand it will take time for the 17 euro zone members to agree on how to build a full financial, fiscal and political union and asked fellow G20 members to stop lecturing.
"We certainly are coming here to receive lessons from nobody," he said.
Protected by Mexican navy vessels and troops who patrolled sun-baked beaches and highways, leaders from the G20 countries representing more than 80 per cent of world output agreed to prioritise boosting growth and job creation, hit hard by the focus on sharp budget cutbacks, which has contributed to an accelerating slowdown in the global economy.
The World Bank last week lowered its forecast for global growth in 2012 to 2.5 per cent and said developing nations faced a long period of financial market volatility and weaker growth.
In its strongest signal in three years that it would act to strengthen the recovery, the G20 said in their draft communiqué that countries without heavy debts problems were ready to act together to spur growth, if the economy slows a lot more.
The United States has pressed Germany as well as China to stimulate spending in order to help the world economy.
Rising violence in Syria and the near-collapse of a United Nations-brokered peace plan was also in focus as Mr Obama met Russian president Vladimir Putin.
The two super powers have clashed over arming Syria and UN sanctions. Mr Obama and Mr Putin agreed that the violence in Syria has to end but offered no new solutions and showed no signs of reaching a deal on tougher sanctions against Damascus.