G20 leaders agree to boost IMF resources

 

President Obama: "Put simply, the world faces challenges that put our economic recovery at risk"

G20 leaders in Cannes have ended their summit with a plan to boost growth and rebalance the global economy, but no detail on plans for the eurozone.

The continuing eurozone debt crisis has dominated the summit.

"We will fight to defend Europe and the euro," said French President Nicolas Sarkozy at a closing press conference.

He said the G20 had agreed to boost the resources of the International Monetary Fund (IMF) and would agree on specific steps by February.

The BBC's economics editor, Stephanie Flanders, said it looked as though "the shakedown" had failed, with a lack of detail and numbers in the final G20 communique.

France could not persuade the rest of the G20 to commit hard numbers to providing a bigger financial safety net for the eurozone, she said.

UK Prime Minister David Cameron disputed the suggestion that there had not been the promised agreements.

"There are agreements on both the eurozone and the IMF," he said.

But he added: "The problem is not that there isn't a deal - the problem is that not all of the details... have been put in place."

Meanwhile, Greek Prime Minister George Papandreou won a confidence vote in parliament early on Saturday, after vowing to form a government of national unity.

'Essential'

Start Quote

The rest of the world needs to see more progress on the European rescue plan sketched out last week in Brussels before they commit any hard numbers”

End Quote

Mr Sarkozy said that France and Germany were in favour of a financial transactions tax and they hoped it would be implemented in 2012.

US President Barack Obama was enthusiastic about commitments to greater currency flexibility.

"We welcome China's determination to increase the flexibility of the renminbi," he said.

"This is something we've been calling for for some time and it will be a critical step in boosting growth."

Mr Cameron said it was "essential for confidence and economic stability" that the IMF had the resources it needed, but reaffirmed that the UK would not contribute to any eurozone bailout.

German Chancellor Angela Merkel confirmed that no countries outside the eurozone had offered to contribute to the bailout fund.

The leaders released a final communique, which:

  • Commits to move "more rapidly" towards greater exchange rate flexibility, without specifically mentioning China
  • Agrees to support the IMF and give it more money if necessary
  • Welcomes Italy's invitation to the IMF to monitor its economic reforms
  • Calls on countries with strong public finances to take steps to boost domestic demand
  • Welcomes the eurozone's plans to restore confidence and financial stability
  • Sets up a task force on youth employment

Start Quote

Resourcing the IMF is not a substitute for the eurozone dealing with its own issues and problems”

End Quote David Cameron UK Prime Minister

The head of the IMF, Christine Lagarde, told the BBC that she had received a "commitment" from the leaders.

"For the moment I have sufficient resources to face requests," she said.

"But if there was a crisis, if there was escalating demands, then the members of the IMF present in the room today said, 'we'll put what it takes to make sure you can continue to play your systemic role'."

Some stock markets took a downward turn after the summit ended. In New York, the Dow Jones fell 0.5%, the Dax in Frankfurt closed down 2.7% and the Cac 40 in Paris dropped 2.2%.

There were also reports of the European Central Bank intervening to buy Italian bonds after the difference between the yields of German and Italian bonds rose to more than 4.6 percentage points.

Greek problems

The G20 leaders' hope is that increased resources will help the IMF to support struggling eurozone economies, such as Greece.

Mr Barroso said that he hoped Greece would stay in the euro, but added that the country would need to take on the responsibilities that come with membership.

Greek Prime Minister George Papandreou won a confidence vote in parliament by 153 votes to 145.

Christine Lagarde told the BBC's Stephanie Flanders she had received a commitment from the G20 leaders

Mr Papandreou said the bailout deal currently on offer by the EU had to be accepted, and it would be "historically irresponsible" to lose it.

He said immediate elections would be "catastrophic" for the deal, so proposed a new coalition to take charge until it had been agreed.

Opposition politicians and some members of his government had called for his resignation, following his announcement of a referendum on the austerity measures.

The Greek finance minister said on Friday that the referendum has now been scrapped, but the announcement of the referendum caused big market falls earlier in the week.

Eurozone leaders have already withheld 8bn euros ($11bn; £7bn) of fresh rescue loans to Greece and there are fears that further delays may see the government run out of cash and default on its payments.

Italian reforms
Crisis jargon buster
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AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

Italy's decision to call in the IMF to make sure it implements austerity measures is a response to the increasing pressure from eurozone leaders to reduce its debt levels.

On Thursday, six former allies of Silvio Berlusconi wrote an open letter urging him to resign after his government failed to agree economic reforms.

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.

"Developments in Italy are a crucial test for the credibility of the anti-crisis framework set by the European Union," said Luigi Speranza of BNP Paribas.

 

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  • rate this
    +26

    Comment number 126.

    Greece's problems, like Italy's (and ours) are homegrown.

    Free and fair trade between nations is fine, but it is totally unacceptable that the EU has meant that hardworking German taxpayers end up bailing out countries like Greece.

    Greece should leave the euro, and maybe the EU, and the idea of ever-closer union should be buried.

  • rate this
    +25

    Comment number 74.

    There will be no painless way out of this mess. Greek debt needs an 80% haircut. This will be a cost to all Eurozone, and probably EU, taxpayers. Perhaps other countries need a referendum on whether their taxpayers are willing to continue subsidising Greece, and, perhaps, Italy.

  • rate this
    +48

    Comment number 65.

    having been in Italy several times on business they appear to have the same problem as greece, ie systematic tax avoidance. a lot of business's deal only in cash, no credit cards or receipts. If their governments would sort this out a lot of the financial problems would go away. wishful thinking!

 
 

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