World leaders pressured Europe yesterday (18 June) to take ambitious steps to resolve its debt crisis after Sunday’s victory for pro-bailout parties in a Greek election failed to calm markets or ease worries that wider turmoil could derail the global economy.
Major industrialised and developing economies were set to urge Europe to take "all necessary policy measures" to resolve a crisis that has now raged for over two years, according to a draft communiqué seen by Reuters that was prepared for a Group of 20 summit in Mexico (see background).
US President Barack Obama, concerned that Europe's woes could upend his re-election hopes, requested a meeting with its leaders on Monday evening.
Earlier he met with Germany's Angela Merkel, who as the leader of Europe's biggest economy is under intense pressure to move faster on deeper financial and fiscal union in the eurozone, but has so far resisted. Obama's spokesman said the president was encouraged by the talks, which touched on steps to "increase European integration".
In an apparent response to concerns among investors that Europe's banks could drag down entire countries, the eurozone members of the G20 would break "the feedback loop between sovereigns and banks," the draft communiqué said.
European officials hit back at the notion that they were to blame for weakening growth across the globe, and played down hopes for any quick miracle cure for the 17-nation eurozone.
"Frankly, we are not coming here to receive lessons in terms of democracy or in terms of how to run our economy," said European Commission President José Manuel Barroso.
In its strongest signal in three years that it would act to strengthen the recovery, the G20 said in their draft communiqué that countries without heavy debts problems were ready to act together to spur growth, if the economy slows a lot more.
The United States has pressed Germany as well as China to stimulate spending in order to help the world economy.
Greece in focus
Merkel welcomed the Greek result but said she could not accept any loosening of the austerity measures and deep structural reforms Athens has agreed to as a condition of its two EU/IMF bailouts totaling €240 billion.
"The Greek government will and must deliver on the commitments it has agreed to," she said.
That puts her on a collision course with the winner of the Greek vote, conservative Antonis Samaras, who campaigned pledging to renegotiate elements of the rescue and reiterated that stance, saying "amendments" were needed to relieve "crippling unemployment and huge hardships" for Greeks.
Greece will ask to spread €11.7 billion in austerity cuts over four years instead of two, a New Democracy party source told Reuters in Athens.
German frustration with Greece's failure to deliver on its reform pledges has risen in recent months, as has Greek anger at the tough austerity prescribed by Berlin and its partners.
In a twist of fate, Greece's soccer team will battle Germany later this week in the quarter-finals of the European championships.