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G-20 summit ends with little action on European debt crisis

Member nations give their blessing to the Eurozone's latest plan but fail to agree on new funding for it. Italy is pressured to accept tighter monitoring of its finances.

November 04, 2011|By Don Lee and Christi Parsons, Los Angeles Times
  • President Obama talks with British Prime Minister David Cameron, left, as Obama aide Michael Froman listens before the start of a meeting at the Group of 20 summit in Cannes, France.
President Obama talks with British Prime Minister David Cameron, left,… (Kevin Lamarque, Reuters )

Reporting from Cannes, France — European leaders pressured Italy to accept tighter monitoring of its finances, but they and the other heads of the world's 20 largest economies accomplished little else here to ease a sovereign debt crisis and stabilize a teetering global economy.

The Group of 20 nations, concluding a two-day summit Friday at this seaside resort, gave their blessing to the Eurozone's latest plan to dig out of its debt crisis. But the leaders failed to agree on giving the Europeans new money, a key part of the plan.

That left the International Monetary Fund, which would oversee a Eurozone bailout fund, with the new assignment of inspecting Italy's books but without the means to rescue the country should it, like Greece, need a lifeline.

Without more funds, Europe would be unable to build a financial firewall to ensure that the debt crisis doesn't spread across the continent. So even with Italy's billionaire prime minister, Silvio Berlusconi, agreeing to have his country's fiscal situation verified and made public every quarter, financial markets were not mollified.

Borrowing costs for Italy, Europe's third-largest economy, jumped Friday, and the nation's banking stocks tumbled, adding angst to the financial markets after days of political upheaval in Greece.

Some G-20 countries, such as Britain and Australia, called for increased IMF funding. But the U.S. maintained that Europe should look to its own resources. Nations with large sums of foreign reserves, notably China and Japan, said they wanted to see more details on the Eurozone's plan and how an IMF-administered bailout fund would operate before making any commitment.

In the end, the G-20 statement issued at the close of the summit promised only to consider funding options by February.

"Eurozone leaders were effectively told to get their own house in order, something they have conspicuously failed to do so far," said Andrew Kenningham, a global economist at Capital Economics in London. In a note to clients, he said the summit's disappointing conclusion coincided with the release of a new purchasing managers report suggesting that the Eurozone might be sliding into a mild recession.

IMF Managing Director Christine Lagarde said in Cannes that, although no specific amount was pledged, all G-20 members have committed to give what would be appropriate to support the fund's needs.

"I regard it as half a success," she said in a news briefing Friday.

David Cameron, Britain's prime minister, was clearly disappointed, saying the debt crisis threatens to spark a recession in his country.

With high joblessness and slow growth expected to persist, especially in advanced economies, Cameron and President Obama pushed the G-20 for a stronger job-action, pro-growth agenda. But some leaders were more interested in pursuing the path of fiscal restraint and deficit reduction.

Such differences laid bare the differences among nations, as well as the difficulty of unifying a body as diverse as the G-20. The bloc has little enforcement authority, yet a proposal to strengthen it by creating a secretary general, as at the United Nations, was rejected at the summit.

For Obama, the group's preoccupation with Europe's debt crisis made it difficult to press for more movement on a framework he introduced two years ago to restructure the global economy by reducing large trade imbalances and realigning the savings and consumption rates in countries. Part of that plan includes persuading China to let its currency rise, which would be likely to help reduce the large U.S. trade deficit.

Top U.S. officials said they were encouraged by what they said were signs that the Chinese were beginning to accept that it's in their interest to let their currency float with the market.

The G-20 statement specifically named China in saying that nations with inflexible currency policies should move more swiftly to adopt a more market-based system.

Chinese President Hu Jintao, in a speech made at the summit and posted on China's government website, made no mention of the currency issue or of supporting the IMF with funds.

Obama administration officials acknowledged that they could point to little in the way of major accomplishments at the summit, but they said there was some progress on setting goals.

"Having heard from our European partners over the past two days, I am confident that Europe has the capacity to meet this challenge" on its debt, Obama said. "I know it isn't easy, but what is absolutely critical — and what the world looks for in moments such as this — is action."

Other actions were mostly small and symbolic. Member nations, for example, embraced financial reforms and agreed to keep phasing out fossil fuel subsidies.

don.lee@latimes.com

christi.parsons@latimes.com

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