G20 leaders to meet in shadow of EU crisis
Los Cabos (Mexico), June 16, 2012
When world's most powerful leaders meet in Mexico next week, there will be no repeat of global unity that helped quell outbreak of the financial crisis. Instead, new tensions over deepening euro zone crisis will rear its head at the Group of 20 summit.
This year new tensions between European leaders over the euro crisis are likely to add to long-standing differences between rich and developing economies, according to analysts.
Only host Mexico has talked about the chance of major progress on tackling problems besetting the world economy, unlike the sense of urgency of recent years.
With the focus squarely on Europe's crisis, many G20 officials are pessimistic about the chances of progress on issues such as preventing the kind of banking problems that triggered the financial crisis or giving more voice at the International Monetary Fund to new heavyweights such as China.
On Friday, a rare fight broke out between Germany and France which traditionally maintain a united front as the euro zone's most powerful countries.
German Chancellor Angela Merkel criticized France's economic performance, a swipe at Socialist President Francois Hollande who has called for more emphasis on economic growth and less on budget austerity.
"We will somehow get through it," said one senior G20 aide. "But it's a disaster - the summit will achieve nothing."
Leaders will kick off two days of meetings in the Pacific resort of Los Cabos - best known for whale-watching and sport fishing - on Monday, just hours after results are expected from Sunday's elections in Greece which may determine the country's chances of staying in the euro zone.
European leaders will come under pressure to show they can stop the risk of a Greek exit from threatening other bigger economies in the single currency area, such as Spain and Italy. They will also be pressed to show they can advance in fixing the fundamental problems that have dogged the single currency.
"We are determined to show the world that the euro and the European project are irreversible," said European Commission President Jose Manuel Barroso in a statement.
The European Union holds its own leaders' summit at the end of this month to discuss a timetable for potentially sweeping reforms that could create a fiscal union in Europe.
"We hope they come up with a timeframe at their June 28-29 summit and that they show the course of action at Los Cabos to give markets a sense of security," another non-European G20 official said, speaking on condition of anonymity.
Investors sent Spanish and Italian debt yields soaring this week on fears that policymakers cannot get ahead of the crisis. Some calm returned on news that central banks were ready to add liquidity if the Greek poll sparks market chaos.
No-one expects a silver bullet from the Los Cabos summit. "The G20 is broadly irrelevant for today's problems - it's...too diverse and, frankly, Europe ought to be able to sort out their own problems," said Unicredit's global chief economist, Erik Nielsen.
Depending on the intensity of any turmoil after Greece's elections, an emergency meeting of finance ministers from the smaller Group of Seven developed nations could be held on Monday or Tuesday in Los Cabos, a G20 source said.
On the sidelines of the summit, US President Barack Obama is due to meet Russian President Vladimir Putin for their first face-to-face discussions since Putin's reelection against the backdrop of Cold War-style recriminations over the escalating conflict in Syria.
Since the first G20 leaders' meetings in 2008 and 2009, when the group marshaled $1 trillion to rescue the world economy from the credit crisis, the bloc has lost momentum. The US has pushed Europe to do more to spur growth and Europe pushed back, saying austerity was essential to restore confidence.
With economies on both sides of the Atlantic either in recession or stuck in slow growth, emerging market powerhouses such as Brazil and China have felt the pain too. But Washington will not let up in its long-standing demand that China let its yuan currency strengthen which would curb its export prowess.
"The G20 will look to maintain momentum on rebalancing demand, which is critical to stronger overall growth," Lael Brainard, Treasury's undersecretary for international affairs, told reporters on Friday.
"Key of course to achieving this among other things is for China and other surplus emerging market economies to take fiscal and other measures to support domestic consumption as well as allowing exchange rates to reflect market forces," she said.
G20 members will present updates on promises made in 2010 to halve budget deficits by 2013. But as concerns mount about the global economy, there is likely to be pushback against Germany's tough fiscal stance and more focus on growth.
G20 leaders will produce a growth-and-jobs action plan similar to that agreed at the last summit in Cannes six months ago which was also dominated by the euro zone's problems.
Countries such as Brazil, Russia and China are set to finalize pledges to boost the IMF's crisis-fighting firepower which is expected to remain at the previously agreed level of $430 billion despite the escalation of the crisis which pushed Europe to offer an 100 billion euros ($126.25 billion) bank rescue plan to Spain last weekend.
The meetings will mark the biggest influx of power and wealth into Los Cabos since an Asia Pacific Economic Cooperation summit in 2002 when strong winds from Hurricane Kenna knocked over a tent where leaders were due to attend a gala dinner.
Local officials said they did not expect major disruption from Hurricane Carlotta, set to batter Acapulco - (1,200 km) to the south-east - over the weekend.
Airport officials expect 50-60 private planes into the San Jose del Cabo airport and although G20 leaders' planes are guaranteed a parking place, others will be diverted to La Paz and Guadalajara, said airport manager Martin Pablo Zazueta.-Reuters