French President Nicolas Sarkozy is flanked by Republican Guards in Cannes,… (Christian Hartmann / Reuters )
Reporting from Cannes, France — They had hoped to use the occasion to turn the page on the European debt crisis, to focus their attention on the struggling global economy and find a formula for collective action that would get businesses to hire and consumers to spend.
Instead, leaders of 20 major economies who gathered in Cannes, France, for their annual summit find themselves once again preoccupied with Greece's financial and political problems, fighting a fire they had hoped was on its way to being contained.
The gravity of Greece's latest debt problem was evident here, a day after its prime minister, George Papandreou, shocked regional leaders by announcing he would put a European rescue plan for his indebted nation before voters in a referendum.
After a hastily called meeting with Papandreou, European leaders led by German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would release the next installment of emergency funds to Greece only after the vote. If Greece doesn't get the money by early December, analysts said, the country will default.
Papandreou told reporters at a separate briefing that the referendum would take place Dec. 4 and would be centered on whether Greece should remain in the Eurozone.
On both the timing and substance of the referendum, he appeared to have yielded to demands from Merkel and Sarkozy. Previously, Greek government officials had talked about focusing the vote on the bailout agreement, a far less popular proposition with Greek citizens. And they had talked about holding the vote in January.
"I believe that the Greek people are wise and capable of making the right decision," Papandreou told reporters.
Still, "there is a very serious chance the Greeks could say 'no' to the bailout deal," said Howard Archer, chief European economist at IHS Global Insight in London. Economists fear that outcome would lead to a Greek default and its departure from the 17-nation Eurozone, actions that would plunge the currency union and the global economy into uncharted waters.
"This significantly increases the risk that this could all end in tears," Archer said.
Should the Eurozone bailout falter, Americans would be among the hardest hit by ripple effects. U.S. exports to the 27-nation European Union total more than $400 billion, and American banks are exposed to the tune of $2.7 trillion in loans and other commitments to the Eurozone.
Consumed by a seemingly unending series of troubles over Europe's debt woes, global leaders including President Obama, who is slated to attend the sessions, have barely begun to tackle the serious economic imbalances and other structural problems that are at the heart of the world's jobs crisis.
Even more complicated, the belt-tightening policies being demanded by the stronger economies in the Eurozone are not only encountering greater resistance from voters but may also stifle growth and worsen and prolong the economic problems.
Policy experts warned ahead of the G-20 summit that labor markets around the world were likely to start weakening again, a devastating prospect especially for young workers. Unemployment among those 16 to 24 years old in the G-20 countries has reached epidemic proportions, from nearly 20% in the U.S., Turkey and Argentina to almost 50% in Spain and South Africa.
"Employment growth perspectives are weakening as recovery slows," said the International Labor Office and the Organization for Economic Cooperation and Development.
National leaders have been similarly talking about the importance of growth. British Prime Minister David Cameron has insisted that it's important for countries to expand their economies and stop worshiping at the anti-inflation altar.
The most helpful thing the U.S. can do for the G-20 is to get the global economy pointed in the right direction, Obama wrote in a recent opinion piece in the Financial Times. And he said that means getting the American economy growing faster.
Yet in many ways Obama faces the same troubling internal politics as many of his European counterparts. His latest $447-billion jobs package doesn't stand much chance of passage.
Obama and other leaders had hoped that last week's announcement by European leaders of a bailout plan for Greece and others would provide breathing room to work on such issues as expanding trade and fixing long-term structural imbalances.
With the exception of Germany, the West's only economic juggernaut, and the Scandinavian countries, which are too small to have an effect on the problem — most Western countries have lagged far behind Asia and other developing regions in growth and competitiveness. They have used debt and opaque financial practices to finance a standard of living and public services their sagging productivity could not support.
Now, the stability of governments and many of Europe's biggest banks are threatened because they hold mountains of debt that financial markets are no longer sure will be paid back.