G20 leaders fail to agree on IMF help for eurozone

Leaders acknowledge IMF resources should be boosted to help euro crisis – but fall short of reaching concrete proposals

 Barack Obama and other leaders failed to come up with firm solutions; the lack of detail disappointed markets. Photograph: Dan Kitwood/Getty Images

Leaders of the world's 20 most powerful economies have failed to agree on how to increase the powers of the International Monetary Fund so it can help stem the European debt crisis, despite acknowledging that the fund's resources should be boosted.
The G20 leaders struggled to reach concrete resolutions at their summit in Cannes. The meeting has been was overshadowed by Greece's political turmoil and worries about Italy, which accepted IMF supervision of its reform efforts a highly unusual gesture toward one of the world's leading economies.
"It's important that the IMF sees its resources reinforced," Jose Manuel Barroso, the president of the European Commission, told reporters. However, any decisions on how to reinforce the IMF were left until February.
The lack of detail disappointed markets, with stocks, bonds and the euro falling. Italy's borrowing rates, in particular, hit worrying new highs.
Barroso said the IMF's increased resources would be there to help countries around the world, not just the eurozone, indicating Europe is struggling to attract help from its global partners to fight its debt crisis. German chancellor Angela Merkel said no countries outside the eurozone had committed any money to the region's bailout fund.
Barroso said several countries had indicated they would provide bilateral loans to the IMF, which would give it more resources without collecting money from reluctant members like the United States.
The final G20 statement said the IMF should work in the next three months on a special account that could be earmarked for the eurozone.
That way countries like the United States, which think Europe should pay for its own financial problems, would not have to put any money in. And countries like Russia and Brazil, which have expressed interested in helping the eurozone, could.
The statement also said the IMF should work out a way to issue more special drawing rights, or SDRs, the fund's own reserve currency that can be exchanged for cash with central banks around the world. SDRs can just be created and do not require new commitments from IMF member states.
Finance ministers will now have to work out the details of these measures.
French president Nicolas Sarkozy said the G-20 would next deal with the topic in February.
With their own finances already stretched from bailing out Greece, Ireland and Portugal and traditional allies like the United States wrestling with their own problems eurozone countries were looking to the IMF to use its resources and rescue experience to help prevent the debt crisis from spreading to large economies like Italy and Spain.
"Every day that the eurozone crisis continues, every day it isn't resolved, is a day that has a chilling effect on the rest of the world economy," British prime minister David Cameron said.
"The rest of the world outside the eurozone is saying, We are ready to do our part to help stabilize the world economy. ... But you can't ask the IMF or other countries to substitute for the action that needs to be taken within the eurozone itself."
The G-20 announcements show how dramatically the powers have shifted within the IMF.
Until two years ago, the IMF dominated by the traditional powers in Europe and the U.S. mostly applied the painful adjustment programs that are attached to its financial lifelines to poor and emerging economies in Asia, Latin America and Africa.
Now, it's growing powers like China, Brazil and South Africa that have to decide whether helping Europe is a worthy investment.
Last week, eurozone leaders decided to boost the firepower of their bailout fund, the 440 billion ($606 billion) European Financial Stability Facility, by seeking financing from outside investors. Those additional resources could then be used to buy up bonds from wobbly countries like Italy and Spain and help them and others recapitalize banks hit by the turmoil on the markets.
Yet cash-rich countries like China, Russia and Brazil quickly made clear that any investment from their side would have to be channeled through the IMF. That would ensure that their loans come linked to strict economic conditions and could also give them more influence within the fund.
German Chancellor Angela Merkel said the promised increase in the resources of the IMF was positive, adding that she was optimistic that they will also be used to help out the eurozone, once the currency union has worked out the details of the EFSF increase.
"We will now accelerate our work on the guidelines of the EFSF and then all IMF member states are called on to contribute to the EFSF," Merkel said.
Eurozone finance ministers are set to meet in Brussels on Monday.
Separately, Barroso that Italy had asked the IMF for help monitoring its budgetary and structural reforms on a quarterly basis.
The country's borrowing rates have risen sharply this week and jumped further on Friday on fears that Minister Silvio Berlusconi does not have the political strength to implement promised reform measures meant to revive lackluster economic growth and bring down debt.
Berlusconi said Italy had turned down an IMF offer for financial aid, asking it instead to simply monitor the implementation of the reforms. The step is highly unusual for such a large economy the third-largest in the eurozone.

Publicada 4 Noviembre 2011

http://www.guardian.co.uk/business/2011/nov/04/g20-leaders-fail-imf-help?INTCMP=SRCH

Eurozone crisis: the revenge of politics

Whatever happens to George Papandreou in the confidence vote due today his referendum plan is dead

 

Whatever happens to George Papandreou in the confidence vote – and after this week his days as Greek prime minister are surely numbered – his referendum plan is dead. He claimed yesterday that a Damascene conversion by the opposition leader Antonis Samaras on the rescue package allowed him to drop the plebiscite on the Euro-bailout and offer a national unity government instead. But that is like a fox faced with a pack that's about to rip him apart proclaiming that every animal has its part to play in the ecology of the countryside. Mr Papandreou's party listened in silence as he explained that the referendum episode had been a "useful shock" that had established consensus. Yes, a consensus has been reached in Greece. But it is not the one that Mr Papandreou claimed. It is that he himself should go.
He started out with the best of intentions, a Swedish-style social democrat and gifted diplomat who arrived determined to reform decades of Greek patronage, practised not least by his own party. He instantly made enemies. The man who became his deputy prime minister and finance minister, Evangelos Venizelos, was one. Having not been consulted about the referendum, Mr Venizelos yesterday returned the compliment by delivering – at 4.45am – a statement that torpedoed it. He said Greece's place in the euro was a historic conquest, not a ball to be thrown in the air by an amateur juggler. Still less when the solvency of Greek banks depends on the sixth tranche of IMF funds coming through. In a subsequent speech, the deputy laid down the law to his boss: there must be no referendum, and the package must be endorsed by at least 180 votes in a parliament where Mr Papandreou's splintering bloc is down to 152. For good measure, he added that it must be done quickly, to avoid a run on the banks.
What had appeared to Mr Papandreou to be good Greek politics – playing hardball with an unruly party – turned out to be a lousy European strategy. He failed to take account of the fragility of the deal that had been hammered out in Brussels: if its components failed to hang together, each vulnerable state would hang apart. Sky-high spreads on Italian debt yesterday confirmed that it is next in line. It is the third-largest debt market in the world, an economy with the sheer heft to shake the eurozone to its foundations. This reality never entered Mr Papandreou's calculations, but for Germany and France it was bound to be decisive – and so it proved. While Silvio Berlusconi fights a desperate battle for his own survival after his failure to win agreement for urgent reforms in Rome, the minds of Angela Merkel and Nicolas Sarkozy were already being distracted from the Greek farce by the question of how to salvage the solvency of an Italian state which is too big to bail out. At the G20 in Cannes, the German chancellor and French president broke the last great taboo of the crisis and referred to the possibility of Greece being cut loose from the single-currency club.
Should that happen, as it may, the consequences for Greece are wildly unpredictable, and could be dire indeed. But so too could be the consequences for Europe more widely, as the entire periphery of the continent scrambled to avoid going the same way. The doomed Papandreou plan for a referendum was always both messy and risky, but it at least had an intelligible aim – injecting some desperately needed democratic legitimacy into the resolution of Europe's crisis. The prospective parliamentary elections could prove an even messier way to do the same. For all the talk of vast, impersonal forces, financial markets must exist in a social context, and their functioning relies on a measure of acquiescence. In administering ever more austerity, Europe's ruling powers have forgotten this simple truth – and now the continent is paying the price. European economics ignored politics for too long, and now European politics is wreaking its revenge.

Publicada 3 Noviembre 2011

http://www.guardian.co.uk/commentisfree/2011/nov/03/eurozone-crisis-george-papandreou-referendum-editorial?INTCMP=SRCH

Eurozone crisis: policymakers fear worst after losing control

Nicolas Sarkozy, the French president, looks spent. But policymakers have to galvanise themselves for one last effort. Photograph: David Gadd/Allstar

We have been here before. As battle-hardened veterans of the panic of 2008 were quick to point out, early November 2011 has started to look frighteningly like mid-September 2008. It is not just that a policy error – George Papandreou's decision to pursue a referendum – has triggered financial market mayhem, although it has. Nor is it just that there has been a deluge of bad news. It is the inescapable sense that policymakers have lost control of the situation and now fear for the worst.
That's how it was three years ago when the US Treasury allowed Lehman Brothers to go bust. And that's how it has been this week following the announcement by Papandreou that he wanted to hold a referendum – hastily abandoned on Thursday – on the bailout package agreed for Greece.
At the annual meeting of the International Monetary Fund six weeks ago, Britain's chancellor, George Osborne, set a six-week deadline for the eurozone to resolve its sovereign debt crisis. Those six weeks expire with the current two-day gathering of the G20 group of developed and developing nations in Cannes, and it is an understatement to say that the deadline has not been met.
Greece is in turmoil, with Papandreou on his way out and elections likely. Silvio Berlusconi's days are also numbered, with his departure likely to take place against the worrying backdrop of an intensifying financial crisis in Italy. Bond yields on Italian debt climbed sharply on Thursday to their highest levels since the creation of the single currency.
Just as the contagion from Lehmans quickly spread to other banks seen as weak – HBOS and RBS, in Britain's case – so the infection has spread from Greece to other vulnerable eurozone members.
Nor does the parallel end there. Within a week of Lehmans going down, even banks that had appeared healthy were at risk. The current increase in French bond yields is a deeply troubling development.
How will this end? Well, nobody in Cannes needed to be reminded that the six months after the Lehman bankruptcy saw the biggest collapse in global economic activity since the 1930s, with a seizing-up of banking, industrial production and trade. In Britain's case, national output fell by 7% and in the subsequent three years only half the lost ground has been regained.
The fear is this: back in 2008, policymakers were well armed, united and fresh. Today they are none of those things. Interest rates have been cut to the bone, the money taps turned full on, the public finances trashed. Ammunition of the traditional kind is running out, leaving central bankers and finance ministries dependent on untried ways of boosting activity. That will be made more difficult because of lack of agreement in any relevant forum – the G8, the G20, the European Union or the Euro Group – about what should be done. There has been a spectacular lack of leadership.
Finally, it is clear that politcians, especially those in Europe, are exhausted. Take a look at Nicolas Sarkozy. He looks spent.
Policymakers have to galvanise themselves for one last effort because, if they don't, the risk is that the recession about to engulf them will be as bad as, if not worse than, that seen in 2008-09.
Problem number one is that monetary union is a flawed concept and always has been. A one-size-fits-all interest rate didn't work and intensified the boom-bust cycles of the weaker eurozone states.
Problem number two is that the debt crisis is far from over, and its continuation has compounded the pressure on the peripheral eurozone countries. The banking system remains dysfunctional and credit is both scarce and expensive.
Britain and the United States have at least been able to relieve some of the pressure on their economies through a depreciating currency. Greece, Italy and Spain have not enjoyed that luxury.
Problem number three is that there has been a series of blunders in the handling of Greece, which throughout has been a question of too much and too little: too much austerity and too little recognition that the problems of one small country could be as systemically important as one relatively small American investment bank. Sarkozy and Angela Merkel must now be ruing all those missed opportunities when they could have accepted the need for a clean Greek default rather than settling for muddling through.
Almost certainly, it is now too late to avoid the eurozone sliding back into recession this winter, dragging the UK with it. Even now, though, it would be possible to prevent a full-blown slump.
First, the European Central Bank needs to start buying Italian bonds aggressively and regularly. The odd €5bn of purchases will not be sufficient: the ECB needs to be thinking in terms of €500bn or €1tn. Given the magnitude of the crisis, Germany will, inevitably, object strongly, but Merkel has a stark choice. Germany can either sanction massive intervention by the ECB or it can accept that the single currency will shrink to perhaps a handful of countries, in which case the euro will go through the roof and kill Germany's export-led economy.
Second, the G20 needs successfully to complete the negotiations in Cannes to increase the firepower of the International Monetary Fund.
The IMF is going to need cash, and plenty of it, if it is to help bail out Europe and be a more effective lender of last resort.
Third, there has to be a recognition that the fetish for austerity in some countries is proving self-defeating. Those who warned that the global economy was not fit to withstand savage budget cuts so soon after coming off the life support machine have been proved right.
The current low bond yields in Britain, Germany and the US are a sign not of strength but of distress, but they do afford the opportunity to borrow for long-term, productive capital programmes at very attractive rates.
That opportunity should be seized, because policymakers need to re-engage with electorates unhappy about the lack of jobs, the squeeze on living standards, the widening gulf between the haves and have-nots, and the overriding feeling that big finance has got away with it.
The mood is ugly, and unless policy-makers act with a sure-footedness and sensitivity not seen up to now, it is about to get uglier.

Publicada 3 Noviembre 2011

http://www.guardian.co.uk/business/2011/nov/03/eurozone-crisis-policymakers-lose-control

The Business podcast: eurozone crisis

With markets growing impatient and Greece running out of money, Europe is running out of time to come up with a solution to a growing list of financial crises.

This week a planned extra meeting of eurozone finance ministers was cancelled (after we recorded the podcast) amid concerns a deal was not close to being reached. EU leaders will still meet in Brussels and the issues are stark: Greece needs a new bailout agreement, many of the continent's banks need to be recapitalised and the bailout fund (EFSF) needs to be substantially enlarged.

All of these issues are interlinked and all require, ultimately, taxpayers' money - much of it from Germany.

Larry Elliott, David Gow and Jill Treanor assess the likelihood of a deal being agreed before calamity ensues

Publicada 25 de Octubre 2011

http://www.guardian.co.uk/business/audio/2011/oct/25/business-podcast-eurozone-crisis?INTCMP=SRCH