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World leaders, relieved that pro-bailout parties won a narrow election victory in Greece, are piling pressure on Europe at the G20 summit this week to outline a lasting strategy to save the euro currency and end financial turmoil.
Group of 20 leaders from major industrialised and developing economies, representing more than 80 percent of world output, started a two-day meeting yesterday in this Pacific resort to prioritise growth and job creation as the path to bolstering a world economy that is running out of steam.
Escalating violence in Syria and the near-collapse of a UN-brokered peace plan also were also expected to be in focus when US President Barack Obama met Russian President Vladimir Putin on the sidelines of the summit yesterday. The two superpowers are clashing over arming Syria and UN sanctions.
But Europe’s progress toward lasting solutions for its debt crisis was the focal point when G20 leaders held their opening session on the global economy. While the Greek vote has eased immediate uncertainty over a possible euro zone breakup, the relief in financial markets could quickly evaporate.
G20 countries want to hear whether Europe is moving towards adopting a firm road map with a timetable for achieving the huge leap of financial, fiscal and political union in order to strengthen the resiliency of monetary union – a path that EU leaders as yet have been unprepared to take before their summit late this month.
“We’re going to continue to make the case,” David Plouffe, a senior adviser to Obama, said in a television interview. “There will be progress made over the next couple days, but no one should expect a firm resolution.”
Chinese President Hu Jintao said in a newspaper interview at the weekend that G20 members should address the debt crisis in a “constructive and co-operative way, encourage and support efforts made by Europe to resolve it and send a signal of confidence to the market”.
Japan backed that call.
“We (Chinese Vice-Premier Wang Qishan and I) agreed to seek further efforts from euro zone, Germany in particular, as stability in Europe is indispensable,” Finance Minister Jun Azumi said as he arrived in Mexico for the G20 summit.
World Bank President Robert Zoellick was far more forceful, calling it “an absolutely critical time” and warning Europe not to squander this opportunity for decisive action.
“We are waiting for Europe to tell us what it is going to do,” he said on Sunday at a business meeting on the sidelines of the summit.
“The danger we’re creating is the danger of policymaking that is increasing uncertainty and making markets more nervous, which has a negative feedback loop.”
Europe’s debt crisis has underscored the need for a bigger war chest at the International Monetary Fund.
Leaders are set to confirm that they will double the IMF’s firepower with an extra $430 billion (R3.57 trillion) in loans even though some emerging nations are frustrated with the slow pace of winning more power at the global lender.
The G20 leaders are expected to adopt a Los Cabos Action Plan, pledging to promote economic growth and jobs, investing in infrastructure and promoting trade, while sticking to its pledges to bring down budget deficits.
In a hint of flexibility on its austerity push, Germany indicated a readiness to give Athens more time to implement the tough economic reforms required under its e130bn (R1.36trillion) EU/IMF bailout. These terms were the central battleground issue in the Greek election campaign. German Foreign Minister Guido Westerwelle left no doubt that Greece must stick to the terms of the bailout if it wants to stay in the euro currency, but added: “I can imagine that we would talk about the time axes once again.”
This would be welcome to the US and other G20 countries, which have warned that cutting spending too quickly can set off a vicious cycle of recession, escalating deficits, social and political upheaval and spreading global risk.
Softening the EU’s austerity drive also is a priority for French President Francois Hollande, a socialist whose hand was strengthened on Sunday by a resounding leftist victory in parliamentary elections.
Even if the timetable is eased, Greece will still have to make budget cutbacks that so far have plunged the country into recession and pushed unemployment to more than 20 percent. It must first form a government, which should happen in coming days, before the EU or the IMF would have discussions. European leaders and the IMF said they would work with Greece to restore the country to growth.
Business leaders from more than 400 companies meeting on the sidelines at Los Cabos urged the G20 to deliver results.
“Over the next few days we will see whether the world can come together or come apart,” said World Economic Forum managing director Robert Greenhill. – Reuters