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.

Start Quote

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”

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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
    0

    Comment number 337.

    The one sure thing that can be learnt from this sorry mess is that democracy, as it stands, can resist neither globalisation nor contemporary capitalism & that whilst Greek resistance may seem anarchic submission would invite the totalitarianism of market forces whereby human society is significant only in terms of profit & loss.

  • rate this
    +3

    Comment number 336.

    I wonder how much german money is being thrown at the greek politicians behind the sceens to stop this referendum. This is modern democracy where every vote is for sale. If they u-turn on the referendum now the people will riot. Of course Germany doesn't care about the Greek people only about protecting their precious Euro. How many will suffer to save it? This is the financial holocaust!

  • rate this
    0

    Comment number 335.

    327. beshocked
    the question should be does Germany and France not see the bigger picture.
    by not paying or at least being perceived as being prepared to pay they have ensured the crises goes on irrespective of Greek vote.
    Their answer is to little to late(time after time)their answer is that they dictate to Greece what to do in a way that insults democracy and the idea of Euro Union shame on them

  • rate this
    +4

    Comment number 334.

    Poor countries such as Greece have effectively devalued the euro to german benefit.

    The problem is that the euro is too strong for tourist based econnomies (at least over the past few years).

    Conclusion: Euro is weak enough for Germany at the moment but if other countries leave they will lose competitiveness. The strong euro (due to Germany) in recent years has stifled tourist led economies

  • rate this
    -1

    Comment number 333.

    "This will lead to the collapse of the Eurozone and shake the global economy to the core."

    Good. It only benefits the rich vermin anyway.

  • rate this
    +2

    Comment number 332.

    I think we should remember that for a country which was a dictatorship less than 30 years ago that there are serious implications other than economic of being cut adrift by the EU

  • rate this
    -1

    Comment number 331.

    Something needs to be done NOW to calm the markets and bring some kind of regulatiry to the world ecomony. It's going to hurt at first - but it's going to hurt anyway and for longer if we let things go on. It's mainly Germany clinging to Greece because without Greece, the euro would rise to the detriment of the German economy.
    SO let's ask Greece to go TODAY

  • rate this
    0

    Comment number 330.

    To be honest this is all totally and utterly irrelevant. All the rescue plans are totally pointless, they are sticking plasters nothing more, on a large gun shot wound.
    Monetary union, without fiscal union wil never work, and they knew this when the euro was created. You cannot have weak ineffective economies competing with large strong ones, without methods of balancing.

  • rate this
    -1

    Comment number 329.

    The euro and EU will be stronger without Greece (never should have been allowed in) and the EU will have learned a hard lesson on fiscal alignment. Greece will be submerged for years to come in recession, weak (or should I say non-existent and valuless) new currency, no ability to raise money, attract investment, etc

  • rate this
    -1

    Comment number 328.

    231. Filipo
    You think every single person in greece is an economic expert?

    No, and that is the problem. How many Greeks actually do understand what will happen in either outcome of a referendum? Very few probably.
    This is being sold as democracy in action but in fact it is potential financial suicide, and most greeks don't know why.

  • rate this
    -1

    Comment number 327.

    Do none of you see the bigger picture? If Greece do hold the referendum and decide to default what is stopping the likes of Spain,Italy and Portugal from also defaulting?

    This will lead to the collapse of the Eurozone and shake the global economy to the core.

  • rate this
    +1

    Comment number 326.

    309. John M
    '''The new boss of the ECB, Mario Draghi, worked at Goldman Sachs who arranged the swap which got Greece into the Euro on false pretences in the first place...'''


    Man who worked in finance gets another job in finance - shocker.

  • rate this
    +3

    Comment number 325.

    "Xander16
    ?? Last time I looked the USA, Taiwan , Canada , Switzerland ,Norway ,"

    You mean the same Norway and Switzerland that implement all the EU laws and regulations but have no say in setting them? The same Norway and Switzerland that are members of Schengen? The same Norway and Switzerland that pay the EU for these privileges?

    " UK already does not have a say"
    It most certainly does.

  • Comment number 324.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -2

    Comment number 323.

    309. John M
    '''The new boss of the ECB, Mario Draghi, worked at Goldman Sachs who arranged the swap which got Greece into the Euro on false pretences in the first place...'''

    ...swaps that were of course was very well known to European leaders. A very smart remark on a piece of info I had overseen - many thanks.

    99,99% of people (voters!) ignore such hard facts...

  • rate this
    0

    Comment number 322.

    BREAKING NEWS FROM GREECE.PAPANDREOU HAS MANAGED A NATIONAL UNITY TRANSITIONAL GOVERNMENT TO FULLY RATIFY THE 27TH OCT BAILOUT

  • rate this
    +6

    Comment number 321.

    "Monogram
    By what right does Merkel and Sarkozy give an ultimatum to Greece?"

    Perhaps because of the little matter of who's paying for the bailout of Greece. If you are stumping up the money to fund the past mistakes of the Greek peoples, don't you have some say in what terms are acceptable as conditions of that money being made available?

  • rate this
    +1

    Comment number 320.

    It looks like Greek europhiles plan to dump GP. They know that any referendum will show a massive rejection of EU and we can't have the public deciding on that kind of issue. Just because the public were born live and work there doesn't mean they can decide who runs their country. What do they think the EU is? A democracy?

  • rate this
    -1

    Comment number 319.

    Total Mass Retain .308

    ?? Last time I looked the USA, Taiwan , Canada , Switzerland ,Norway , Hong Kong were not in the EU ? I could carry on...

    I need lunch carry on fighting for the EU.

    ps UK already does not have a say

  • rate this
    -1

    Comment number 318.

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

    A real leader, simple and to the point

 

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