G20 'agrees to boost' International Monetary Fund

 

President Obama says that the G20 must focus on the European financial crisis

The Group of 20 leaders have agreed to increase the firepower of the International Monetary Fund (IMF).

It means the Fund will be more able to support struggling eurozone economies.

French President Nicolas Sarkozy confirmed that most talks had revolved around the eurozone crisis.

In Greece, Prime Minister George Papandreou has defied calls to resign ahead of a vote of confidence on Friday. He has said he may scrap a plan for a referendum on the bailout deal.

Mr Papandreou's surprise decision on Monday to hold a national vote sparked turmoil on financial markets and upset his German and French counterparts.

However, facing opposition from his own finance minister, on Thursday the prime minister said he would scrap the referendum if the conservative opposition party voted to pass the bailout package in parliament.

But the opposition as well as several government MPs have called for Mr Papandreou to quit and there are fears that he may lose the confidence vote.

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Eurozone leaders have for the first time (in my memory) publicly conceded that it is possible to leave the eurozone”

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The debt crisis also continues to threaten the much bigger Italian economy.

Rome has been finding it increasingly difficult to borrow money in financial markets, and the Prime Minister, Silvio Berlusconi, has been called upon by some of his own MPs to quit.

China reticence

In other developments on the first day of the two-day G20 summit in Cannes:

  • US President Barack Obama warned that the eurozone financial crisis threatened to engulf the world
  • Italy is to commit to further cuts to its debts and its annual borrowing rate according to a draft communique
  • China indicated that it would not consider providing money to the eurozone bailout fund until the situation in Greece has been resolved
  • Chinese President Hu Jintao also played down the chance of allowing the value of the yuan to rise, contradicting more optimistic remarks by the US

Nicolas Sarkozy: ''Morally this (financial transaction) tax is something that we just can't overlook in our search for solutions''

  • India and Canada expressed their opposition to the idea of a tax on financial transactions, something strongly backed by eurozone governments
  • the G20 agreed to look at the credit default swaps markets, which has been blamed by some European leaders for exacerbating the eurozone debt crisis
Euro exit

Eurozone leaders had wanted to present the G20 with a clear action plan, but Greece has thrown this into disarray.

Eurozone governments struck a deal with Greece last week for a debt write-down and to bolster Europe's bailout fund and support the banking sector.

But it is feared that the package may yet unravel.

The French and German leaders, and Mr Papandreou himself, openly talked for the first time of the possibility of Greece leaving the euro if it is unable to ratify the bailout package.

On Thursday, German Chancellor Angela Merkel said that the stability of the eurozone was more important than Greece's continued membership of it.

The view was echoed by Mr Sarkozy, who warned: "We cannot accept the explosion of the euro, which would be the explosion of Europe."

Eurozone leaders made clear that the next 8bn-euro tranche of bailout money would not be released to Greece until after any referendum had been held.

Angela Merkel: ''The referendum is about nothing else than the question does Greece want to stay in the eurozone? Yes or no''

On Thursday, the Greek finance minister, Evangelos Venizelos - who led an internal government revolt against Mr Papandreou's referendum plan - said the government still had enough cash to get by without the bailout loan until 15 December.

Pressure on Italy

There was continuing unease on the bond markets, with Italy and Spain forced to pay higher interest rates in order to borrow billions of euros.

Many economists fear that if Greece does exit the euro, it could lead to financial contagion, as investors and ordinary bank depositors in other eurozone countries may fear that their own government will follow suit.

The biggest fears surround Italy, whose economy and debts dwarf those of Greece.

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A eurozone without Greece is no longer necessarily the worst outcome”

End Quote

Italy's one-year cost of borrowing has risen to 5.1%, its highest since joining the euro, and far above the mere 0.3% interest rate that Germany must pay.

The country's cost of borrowing has continued to rise despite interventions by the European central bank to buy up Italian debts.

Just like Athens, Rome is under pressure from European counterparts to implement further economic reforms and austerity. But also as in Greece, this is undermining the political cohesion of the government.

Six Italian government MPs wrote an open letter on Thursday calling on Mr Berlusconi to make way for a transitional government.

The Italian cabinet agreed a limited package of budget reforms at an emergency meeting on Wednesday evening.

But they failed to agree to issue a decree implementing the changes, meaning that they must now go to a confidence vote in parliament - one that Mr Berlusconi may be at risk of losing.

Asian exporters

Agreement was reached among G20 leaders to increase the resources of the IMF, according to a draft communique seen by the Reuters news agency.

There are no details as to how much more money governments would give it.

Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

"There is a broad view among G20 there does need to be additional financing," said Australian Prime Minister Julia Gillard. "We will be working on it overnight and tomorrow."

However, a White House spokesman said that the US would not be providing additional funds.

The IMF has played a key role in the eurozone crisis, providing additional money to Greece, Portugal and the Irish Republic alongside the bailout loans from other eurozone and EU governments.

French President Nicolas Sarkozy also said that countries running large trade surpluses - which include China and Japan - were willing to do more to help boost global growth.

The draft communique referred to actions by these countries to boost their spending.

However, it left open whether the big Asian exporters would allow their currencies to strengthen - something that would hurt their trade competitiveness.

 

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  • rate this
    +43

    Comment number 177.

    It strikes me that most commenters don’t seem to understand that the bailouts were not to save Greece but the Euro. Never a good deal or indeed appropriate for Greece and no Greek I know was in favour. Greece is largely to blame, of course, but the opportunistic behaviour of Germany and France (we’ll give you money if you buy more submarines) leaves no room for sympathy for either of them.

  • rate this
    -1

    Comment number 176.

    Re # 35 "UK referendum in 1975 with 67% in favour of EU membership."


    There was no such referendum. The British were asked whether they're for or against UK's participation in the European Common MARKET.

    Not a superstatate cancerous growth ECM has metastatized into since, without them having any say re their homeland's sovereignty vis a vis Brussels unelected Commi-ssars.

  • rate this
    +5

    Comment number 175.

    Remember that £10 you owe me ? Need more, have £100, Need more, have £1000 - yeah it's ok you can afford the interest, it's only 0.5% atm. Here have £300bln.

    Oh yeah I forgot to mention the interest rate is now 20+%, you owe me 60+bln a year FOREVER.

    Wake up people.

  • rate this
    -3

    Comment number 174.

    Seems to me this chap is treating his own people like fools, in a bid to keep political power a bit longer. Selfishly grabbing a straw, to remain a float for a few more hours while he has a real chance to save the whole ship from going down and happy to let the women, pensioners and children of his country drown. A website is required explaining the why to comply with "No Brainer" in greek at end

  • rate this
    +1

    Comment number 173.

    Nobody's for democracy in Europe when the interests of the 1% are at stake but we think that we're in the position to dictate what kind of government other countries are going to have.

  • rate this
    +1

    Comment number 172.

    If the EU and the euro were not built on foundations of sand, then 10 million Greeks couldn't cause this level of chaos in the financial and political arenas

    The EU is like the USSR, undemocratic and teetering on the edge of crumbling into dust
    It was never a strong and reliable system to start with, all that Greece is doing is proving to the world how weak and worthless the EU system really is

  • rate this
    +1

    Comment number 171.

    A key part of the plan was to encourage wealthy emerging economies to contribute to expanding the European Financial Stability Fund (EFSF).

    Who would want to do this?

  • rate this
    +1

    Comment number 170.

    134.Eva... Greek people don't want to leave the eurozone! We want the PM to resign, as simple as this!

    If the UK experience is anything to go by, changing Mr Papandreou for another career politician will solve nothing. The poor will still get poorer and the rich will continue to raise two fingers at any form of taxation.

  • rate this
    -1

    Comment number 169.

    @mgjt101 "Why do the Greeks feel they dont have to pay! If you dont pay the rest of the EU has to!"

    And why should we pay for someone else's mistakes?! We've got enough problems of our own to sort out before worrying about funding some other country whose problems are of their own making!

  • rate this
    0

    Comment number 168.

    166 Mac-Heath

    If only it were that simple. Let's hope the greek people give it more thought than that.

  • rate this
    0

    Comment number 167.

    I struggle to believe that this hasn't been stage-managed. No bailouts will be paid until after a yes vote. Meanwhile the Greeks will get a glimpse of what actually lays ahead if they don't accept austerity and EU bailouts.

    They will run out of cash, have to vote yes, have to stop striking and just get on with it. All the political leaders win...well, at least until Spain and Italy implode!

  • rate this
    +3

    Comment number 166.

    #159Do you think they know that if they vote no, come january no-one in the public sector will get paid?'
    '

    If they vote no, Christmas will be spent printing drachmas. Civil servants will spend January talking to the worlds press advertising great deals on holidays and olive oil.

  • rate this
    -1

    Comment number 165.

    All well and good letting the Greeks decide their destiny, but if they do choose to default on their debts and leave the Euro, their currency will be worthless, it will be even more difficult for them to pay their creditors which will have knock on effect in those countries that are owed. Ultimately the whole system could grind to a halt because no one trusts anyone to pay back loans, yes?

  • rate this
    +1

    Comment number 164.

    It couldn't happen to a combination of egotistical self rightous gits who think they are above the publics opinion.
    I hope the Euro crashes and the EEC folds as its done NOTHING for Scotland or the UK a whole.
    Heath signed us in it without going to the people and we have all suffered since.

  • rate this
    0

    Comment number 163.

    131.mariaantman - your country has already been sold out, by successive governments cooking the books so that rich people would keep lending ever bigger sums of money, so that taxes coule be kept relatively low & your until now generous (to say the least) pensions could be kept up. It's either default in an orderly manner or a disorderly manner either way Greece in is deep do do

  • rate this
    +3

    Comment number 162.

    125. Bellatori
    It seems that Europe, the western world but then China and India too - all the world seems to look upon Greece as if the so-called 'independent will' of a mere 10 million Greeks decides on the fate of 7 billion people on the planet. Greeks really must be some kind of super race then!!!

    Does anyone get the picture of the tragicomedy that is being played in front of our eyes?

  • rate this
    0

    Comment number 161.

    Eurozone countries should remove the previously agreed bail-out offer from the table and get to work right now on extracting Greece from the Eurozone - what use is a month or two of further uncertainty?

  • rate this
    -1

    Comment number 160.

    If I were Greek I would want the Greek economy to be run/overlooked by foreigners, the Germans in particular. The Greek government clearly can't run the economy. The German economy is fantastic with great social services, why not use the German model. At least the the Greek school children will have books for school.

  • rate this
    0

    Comment number 159.

    82.dndsm

    Fancy giving the people they represent a chance to vote about what will happen to their future instead of dictating?

    Seeing as very few greeks will fully understand the implications of staying in the euro or pulling out, it is actually a very dangerous situation to be in.
    Do you think they know that if they vote no, come january no-one in the public sector will get paid?

  • rate this
    +3

    Comment number 158.

    With reference to all of you Brits constantly making negative comments about the current EU problem or Germany’s way of handling matters, just remember that the UK is at the very bottom of the quality of life and other standards table when compared to most other EU states or even other neighbouring countries. Your invoice for being that apparent independent Great British Island in this world !

 

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