By Alan Crawford and Flavia Krause-Jackson - Feb 27, 2012 5:01 AM GMT+0700
Group of 20 nations rebuffed German- led calls to come to Europe’s rescue as it battles the sovereign debt crisis, saying any decision on outside help hinges on the euro area delivering more financial firepower within two months.
G-20 officials meeting in Mexico City heeded U.S. calls to defer a German bid to raise fresh money for the International Monetary Fund that could be used to defuse the crisis.
A euro-area review of its financial firewall against the crisis is “essential” before any consideration to “mobilize resources” for the IMF, according to a G-20 statement issued at the end of the summit today. Progress will be assessed in April, when officials gather in Washington for the IMF’s Spring meetings, according to the statement.
This is the second time in almost four months that the world’s biggest economies have declined to rally to Europe’s side, even as the IMF warns the crisis risks triggering another global recession. The spotlight now shifts to Germany, Europe’s biggest economy, which is weighing whether to agree to beef up the region’s financial backstop to a potential 750 billion euros ($1 trillion) at a March 1-2 European summit.
‘Color of Money’
“Until we see the color of their money, I don’t think you are going to see any money from the rest of the world,” U.K. Chancellor of the Exchequer George Osborne said in an interview in Mexico City today.
Germany went in to the Mexico meetings aiming to rally G-20 nations to find fresh money for the IMF that could be channeled to fighting the crisis. In a Feb. 15 document, the European Union called on G-20 countries “and other financially strong IMF members to support the efforts to safeguard financial stability by contributing to the increase in IMF resources.”
Instead, in Mexico, the U.S. led calls on Europe to step up, with Treasury Secretary Timothy F. Geithner saying in a speech that the region needed to make their crisis-fighting commitments “credible.” German Finance Minister Wolfgang Schaeuble said that a deal struck Feb. 21 for a second, 130 billion-euro Greek bailout and debt write-down showed that “Europe has done its homework.”
The exchange underscored G-20 divisions as Japan, Brazil, Russia and the U.K. joined with the U.S. and Canada in prodding the euro-area to boost its crisis defenses.
Merkel’s Greek Vote
While the German government has yet to show its hand on a plan to combine the region’s temporary and permanent rescue funds, Chancellor Angela Merkel has signaled she is open to review the matter at next week’s EU summit in Brussels. Her government must first win a parliamentary vote in Berlin tomorrow sanctioning last week’s bailout for Greece.
EU Economic and Monetary Commissioner Olli Rehn, asked in Mexico if he expected a deal to combine the funds at the Brussels summit, said he anticipated a result “in the course of March.”
“The Germans have their own sequencing” and “want Greece out of the way” before debating the firewall, Jacques Cailloux of Royal Bank of Scotland Group Plc., said by phone today. “Any hope there could have been for an agreement on a higher firewall as early as this week’s summit is fading.”
Even so, the G-20’s stance on additional funds is not as big a focus for investors as Greece and the European Central Bank’s decision to offer banks unlimited liquidity for three years, the second such offering in three months, Cailloux said.
Bonds Rise
Pressure for a deal in Mexico eased after European bond markets reacted positively to last week’s agreement to help Greece avert the euro-area’s first sovereign default.
Italy’s 10-year bonds rose for a seventh week, the longest run of gains in the euro-era, while Spanish 10-year bonds had their biggest weekly advance in a month.
Europe’s Stoxx 600 (SXXP) index still slipped 0.4 percent last week on concern that Greece won’t be able to implement the austerity measures needed for the rescue, and as the European Commission said the euro area’s economy will shrink this year.
The G-20 statement, while recognizing Europe’s recent “important progress,” and said that growth expectations for 2012 are moderate and downside risks continue to be high along with market volatility.
With oil prices undergoing the longest rally in two years amid tension with Iran and Syria, G-20 countries said they were “alert to the risks of higher oil prices, and welcome the commitment by producing countries to continue to ensure adequate supply,” the statement showed.
Lagarde Request
IMF chief Christine Lagarde is seeking $600 billion to allow an increase in lending resources of $500 billion. Euro- area governments have pledged about $200 billion of that sum.
Brazil’s representative to the Washington-based lender, Paulo Nogueira Batista, said in an interview that the U.S. refusal to contemplate new cash for the fund was hampering the drive to raise money from other nations.
Brazil’s Finance Minister Guido Mantega, after meeting with his counterparts from Russia, India, China and South Africa, said that the BRICS group of major emerging markets will only contribute more funding for Europe if the region’s leaders follow “precisely to the letter” a 2010 agreement to give them a bigger say in how the IMF is run.
Canadian Finance Minister Jim Flaherty pointed the finger at Germany, saying that it was time for Europe’s dominant country to “take that leadership role very seriously and come up with an overall euro-zone plan.”
Mexican President Felipe Calderon, whose country holds the rotating G-20 presidency, urged leaders not to become complacent.
“We’re all in the same boat, and it doesn’t matter whether the hole is in first, second or third class,” Calderon told officials in a dinner at the historic Chapultepec castle last night. “It’s the same boat and we have to fix it.”
To contact the reporters on this story: Alan Crawford in Mexico City at acrawaford6@bloomberg.net;
To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.
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