G-20 Urges EU to End Crisis as Greek Government Teeters

By Simon Kennedy and James G. Neuger - Nov 4, 2011 3:44 PM GMT+0700

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Nov. 4 (Bloomberg) -- Canadian Finance Minister Jim Flaherty talks about the meeting of Group of 20 leaders in Cannes, France, and the outlook for the European sovereign-debt crisis. Flaherty speaks with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Nov. 4 (Bloomberg) -- Steven Major, global head of fixed-income research at HSBC Holdings Plc, discusses the Greek debt crisis and the European Central Bank's decision to cut interest rates to 1.25 percent. Major talks with Francine Lacqua and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

World leaders expressed impatience and irritation with Europe’s inability to defeat its two-year financial crisis as they urged swift resolution for the sake of the global economy.

With Greece’s debt-ridden government at risk of collapsing as soon as today, Group of 20 chiefs meeting in Cannes, France, yesterday pushed European authorities to flesh out and enact a week-old rescue plan that has already shown signs of unraveling.

“We are grappling with a lack of confidence in markets that leaders will act,” Australian Prime Minister Julia Gillard said in the French seaside resort. “It is therefore very important for leaders to act.”

Such calls -- echoed by the U.S., Britain, China and Russia -- highlight international disappointment that Europe missed the G-20’s deadline of this week to deliver a fix for its fiscal woes. German Chancellor Angela Merkel and French President Nicolas Sarkozy sought to regain the initiative by keeping aid for Greece on ice and demanding Italy accelerate austerity.

“The euro zone must absolutely send a message of credibility to the whole world,” Sarkozy told reporters. “When we take decisions they must be applied, when we set rules they must be respected.”

Confidence Vote

Athens will remain a focal point for policy makers and investors today as Prime Minister George Papandreou faces a confidence vote in parliament. He yesterday yanked his planned referendum on his country’s bailout after it split his party, roiled financial markets and drew unprecedented warnings from euro leaders that it may cost Greece its membership in the 17- nation currency club. Opposition leader Antonis Samaras rejected sharing power with Papandreou and called on the premier to quit.

Whether Greece will need to quit the 12-year-old bloc -- designed by its founders as permanent -- was discussed by the G-20, said Canadian Prime Minister Stephen Harper, who predicted “cooler heads will prevail.” Leaders monitored their BlackBerries through their talks to keep up with fast-moving events in Greece, according to U.K. officials.

As European Central Bank President Mario Draghi cut interest rates and warned a recession is looming, the euro area may find some support after Russian President Dmitry Medvedev said the BRICS group of emerging markets is ready to stump up cash. European policy makers are looking beyond their borders to more than double the spending strength of their 440 billion-euro ($608 billion) rescue fund.

‘Preserving the Euro’

“We have to help preserve one of the world’s leading currencies,” Medvedev said. “We are all interested in preserving the euro.”

Brazil, Russia, India, China and South Africa would contribute to Europe in line with their current voting rights at the International Monetary Fund, Medvedev said. In return, they expect Western powers to give them a bigger say at the Washington-based lender, he said.

The IMF may receive a broader fillip after the U.K. backed an increase in the fund’s $391 billion war chest to give it a bigger crisis-fighting role. Options include raising the amount of Special Drawing Rights, opening a trust fund or not rolling back a 2009 cash increase, an EU official said.

Greek Aid

In a draft of a statement to be released today, officials also pressed the fund to “expedite” a new liquidity line for economies “with strong policies and fundamentals facing” outside shocks.

“When the world is in crisis, it’s right that you consider boosting the IMF,” U.K. Prime Minister David Cameron said.

After browbeating Papandreou on the eve of the talks, Merkel returned to the theme yesterday by saying Europe will withhold 8 billion euros of fresh aid until Greece meets its fiscal promises.

“What counts for us is actions,” Merkel said. “So far, I don’t really see those actions.”

Greece, whose two-year bond yield topped 100 percent yesterday, faces the “real danger” of a disorderly default, risking a run on banks at home and abroad, billionaire investor George Soros said in an speech in Budapest yesterday.

Italian Efforts

Merkel and Sarkozy also teamed up to urge Italian Prime Minister Silvio Berlusconi, who oversees the euro area’s second largest debt load after Greece, to forge ahead with budget cuts. In a sign investors are unimpressed with the emergency steps he has taken so far, they yesterday pushed Italian bond yields to a euro-era record.

The IMF may be tasked with monitoring Italy’s budget- cutting efforts, an EU official said. Berlusconi’s government may first have to request the surveillance.

“For me, Europe is all about Italy right now,” said Jurrien Timmer, who co-manages Fidelity Investments’ $219 million Global Strategies Fund in Boston. “The real issue is contagion, and Italy seems to be the line in the sand. Italy is really too big to fail. It’s the third largest bond market in the world, and it needs to be ring-fenced.”

To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net