G20 STATES have ramped up pressure on Europe to take decisive action by the end of this week to bring the euro zone’s debt crisis under control and prevent the global economy tipping into recession.
In a joint statement after meeting in Paris at the weekend, finance ministers and central bank governors from the world’s 20 leading economies said they expected a euro zone summit next Sunday to “decisively address the current challenges through a comprehensive plan”.
US treasury secretary Timothy Geithner said they had “heard encouraging things from our European colleagues in Paris about a new comprehensive plan to deal with the crisis on the continent”. He said the plan included a much more substantial rescue fund to act as a buffer to ensure European states could borrow at sustainable interest rates, a new bailout programme for Greece and a recapitalisation of banks.
“They clearly have more work to do on the strategy and the details, but when France and Germany agree on a plan together and decide to act, big things are possible,” Mr Geithner said. “I am encouraged by the speed and direction in which they are moving.”
France and Germany are in discussions on a set of proposals which they plan to present at the euro zone gathering on Sunday. “The results of [that] summit will be decisive,” French finance minister François Baroin said.
Europe’s debt crisis pushed virtually every other topic off the G20 agenda in Paris, with emerging economies adding to the intense pressure on Europe out of concern that their strong growth could be jeopardised by the protracted uncertainty in the single currency area.
The managing director of the IMF, Christine Lagarde, warned that the weakness of advanced economies was “beginning to hit emerging countries” that had supported the world economy during the previous economic crisis.
After the summit, British chancellor George Osborne said euro zone governments would have been left “under no misunderstanding that there is a huge amount of pressure on them to deliver a solution to the crisis”.
Japanese finance minister Jun Azumi put it bluntly, saying Europe had to “get its act together” in order to avoid contagion further afield.
The Franco-German plan is expected to call for bigger “voluntary” losses on private sector holders of Greek debt, with the French side saying the haircut is “more or less certain” to be higher than the 21 per cent agreed in July.
Signalling that Athens’s creditor banks will resist any attempt to make them shoulder a larger burden, however, a leading banking lobby negotiator said there were no grounds for revising the terms of the July agreement.
"We do not see that a compelling case has been made to reopen the [July] deal. A deal is a deal," Charles Dallara, managing director of the Institute of International Finance, told the Financial Times. He warned that doing so could prompt investors to sell other countries' sovereign debt, destabilising the euro.
European economic and monetary affairs commissioner Olli Rehn played down Mr Dallara’s comments, referring to any change to the July deal as “technical revision due to change in market circumstances”. “We are not reopening the deal, we’re rather revisiting the deal,” he added.
G20 ministers side-stepped whether to increase the resources available to the IMF, an idea put forward by emerging economies but unpopular with some of the fund’s biggest shareholder-states.
The prospect of a global financial tax, as proposed by France and Germany, also receded. German finance minister Wolfgang Schäuble said a global tax was “not realistic” but said Europe should pursue the idea alone.