By Hans Nichols and Mike Dorning - Jun 19, 2012 5:57 AM GMT+0700
President Barack Obama, working to help contain Europe’s sovereign debt crisis, pressed leaders of the world’s largest economies today, including Germany’s Angela Merkel, to find a consensus plan as financial markets escalated pressure on Spain.
President Barack Obama with Ambassador Julian Ventura at Los Cabos International Airport to attend the G20 Summit on June 17, 2012, in Mexico. Photographer: Carolyn Kaster/AP Photo
President Barack Obama walks down the steps of Air Force One after arriving at Los Cabos International Airport in San Jose del Cabo, Mexico. Photographer: Paul J. Richards/AFP/Getty Images
Chiefs of the Group of 20 nations are in Los Cabos, Mexico, for two days of meetings as Spanish borrowing costs soared to a euro-era record and elections in Greece failed to damp the threat of contagion that threatens the global and U.S. economies as well as Obama’s re-election prospects.
“We are going to be very busy,” Obama said as he left a morning meeting with the summit’s host, Mexican President Felipe Calderon. “We are confident that this will be a productive summit.”
European leaders, including German representatives, have come to the summit with a “notable shift” in outlook, persuaded by a slowing global economy of the need to place greater Treasury Undersecretary for International Affairs.
In addition to Calderon, Obama was meeting today on the sidelines of the summit with Merkel and Russian President Vladimir Putin, with whom he discussed violence in Syria and other issues.
“We agreed on the need for a cessation of the violence,” Obama told reporters after the Putin meeting today.
‘Common Points’
“We have found many common points on this issue,” Putin said, adding that the two sides will continue discussions.
Putin and Obama also talked about the U.S. missile defense program, a source of friction between the two countries, and the expansion of commercial ties, which are “far below” where they should be, Obama said. He called the two-hour talk “candid and thorough.”
Earlier in the day, Obama welcomed the results of yesterday’s Greek elections as a “positive prospect not only for their forming a government, but also working constructively with their international partners.”
Greek political parties that support a bailout and austerity plan won a majority of seats in the parliament.
Obama met with Merkel for 45 minutes before the formal G-20 sessions began and is scheduled to meet tonight with the leaders of all five European nations at the summit. Tomorrow he meets with Chinese President Hu Jintao.
Pressuring Merkel
While pressure is building on Merkel to be more accommodating to European nations enveloped in the debt crisis, she said this morning that the new Greek government shouldn’t be granted additional leeway on the terms of its international bailout.
“The important thing is that the new government sticks with the commitments,” Merkel told reporters today. “There can be no loosening on the reform steps.”
“I’m definitely not talking about a new aid package. The money we have provided is comprehensive,” she said.
Brainard said at a news conference later in the day that European leaders are prepared to find other ways of easing the burden on Greece, saying “we can expect” flexibility on the timetable for meeting reform goals.
Spanish 10-year bond yields leaped above the 7 percent level that forced Greece, Ireland and Portugal to call for sovereign rescues for the first time since the euro’s creation.
The 10-year Spanish yield jumped as much as 41 basis points to 7.29 percent before paring gains and trading at 7.16 percent at 11:44 a.m. New York time. The euro depreciated 0.6 percent to $1.2567 after rising and falling as much as 0.9 percent.
Debt Crisis
The Standard & Poor’s 500 Index swung between gains and losses while the Stoxx Europe 600 (SXXP) Index ended little changed after surging as much as 1.1 percent.
Europe’s sovereign debt crisis has become a familiar, if unwanted, presence at meetings of world leaders.
“We are heading into the second consecutive G-20 summit that will be dominated by concerns over the euro crisis and a vote in Greece,” said Daniel Price, managing director of Rock Creek Global Advisors LLC, a Washington-based consultancy.
“Tensions are higher this time for several reasons,” he said. “The contagion only feared in Cannes has now in fact materialized in Spain.”
With international markets looking for an indication of how European leaders plan to act, the stakes at the two-day summit in Los Cabos are high for a global economy at a “very dangerous moment,” said World Bank President Robert Zoellick.
European ‘Cloud’
Obama was home in Chicago for two days off from public duties before the summit. He attended a wedding, visited friends and, hours before departing for Mexico last night, played golf.
While Obama has called Europe’s banking and growth crisis a “cloud” hanging over the U.S. economy, administration officials said they don’t expect the summit to resolve the sovereign debt problem that has led to high borrowing costs and economic contraction in much of Southern Europe.
“Let me also just underscore this isn’t a meeting where we expect Europeans to make decisions about Europe,” said Michael Froman, deputy security adviser for international economic affairs, in a briefing for reporters in Washington on June 15. “The G-20 looks forward to hearing more from the European leaders on the progress of their efforts to stabilize their banking system and promote growth, and to hear what their vision is for taking this effort forward toward fiscal and financial union.”
Concrete Steps
Froman said concrete steps are more likely when European leaders meet for a summit June 28-29. America’s ability to force European leaders and institutions to take action is limited, he said.
“This is not an issue of U.S. leverage,” Froman said. “It’s Europe doing what’s in Europe’s interests and what’s in the interest of the rest of the global economy.”
Leaders may use the summit to agree to boost the $430 billion firewall the International Monetary Fund announced in April, Calderon said. “I estimate that there will be a larger capitalization than the pre-accord reached in Washington, which will be finalized here, but I don’t want to speculate by how much,” he told reporters June 16.
Failure to stem the crisis would add to economic uncertainty in the U.S. at a time when Obama and his presumptive Republican rival, Mitt Romney, are squaring off on how to spur growth and create jobs.
Romney Comment
Romney said in an interview aired yesterday that the U.S. isn’t going to bail out European banks if the financial crisis there worsens.
Europe “is capable of dealing with their banking crisis if they choose to do so” with a response heavily dependent on Germany, Romney said on CBS’s “Face the Nation” program. The U.S. is “not going to send checks to Europe. We’re not going to bail out the European banks. We’re going to be poised here to support our economy.”
Obama is in a two-front battle as an incumbent president facing re-election amid flagging economic indicators.
“Obama is running both against Europe as well as” Romney, said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. “He’s in a bind.”
In addition to Europe’s financial woes, leaders will discuss sectarian violence in Syria, where the United Nations suspended its observer mission on June 16. Russia has defended its delivery of attack helicopters to the Syrian regime, a move the U.S. has said is escalating the 15-month conflict.
With economic uncertainty in Europe, there are signs that the U.S. economy may be cooling at home. More Americans than forecast applied for unemployment insurance payments, with claims for jobless benefits rising by 6,000 to 386,000 in the week ended June 9. The Commerce Department reported that retail sales in the U.S. fell in May for a second month. Employment growth has waned compared with its pace earlier this year, and the jobless rate rose for the first time in 11 months in May, to 8.2 percent.
To contact the reporters on this story: Hans Nichols in Los Cabos, Mexico at hnichols2@bloomberg.net; Mike Dorning in Los Cabos, Mexico at mdorning@bloomberg.net
To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net
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