G-20 Leaders Chide Europe on Crisis

Spain pressed to provide details of its bank bailout by global chiefs.

Group of 20 leaders prodded Spain to spell out details of its bank bailout as the deepening debt crisis in Europe exposed tensions among the world’s biggest economies.

With Greece on a financial lifeline and Spain asking for as much as 100 billion euros ($127 billion) in aid for its blighted banks, emerging economies pledged more money to stem the turmoil while chastising the euro area’s guardians for damaging market confidence.

G-20 chiefs “talked about how we need clarity on Spain’s application as soon as possible,” German Chancellor Angela Merkel said yesterday in the Mexican resort of Los Cabos, where leaders began their final day of deliberations. “We all know that banks that aren’t properly capitalized are a real source of turmoil and risk for the economy.”

Hanging over the meeting were record borrowing costs for Spain, the 17-nation euro region’s fourth-largest economy, that is now threatening to spill over into Italy, where bond yields have also been rising. With the global recovery slowing, officials from China to India and Brazil signaled exasperation with Europe’s slow response to the debt crisis, which is now in its third year.

Reflecting their bigger clout in the world economy, emerging countries promised to boost their contributions to the International Monetary Fund’s global firewall, almost doubling the fund’s resources to $456 billion. They were led in the effort by China, which promised to contribute $43 billion.

Indian Prime Minister Manmohan Singh, who pledged $10 billion to the IMF, said there are still concerns the firewall “may not be adequate to deal with contagion.” Those resources to be mobilized by Europe and for the IMF “are less than was estimated a year ago, and the crisis is actually more serious.”

Brazil’s Finance Minister Guido Mantega said the crisis in the euro area was affecting global trade, and called for a “change of direction” to combat the turmoil. Indonesian President Susilo Bambang Yudhoyono pressed for more “rigorous methods to manage the crisis,” warning a failure to deliver would bring “unsettling consequences to all of us.”

The euro rose 1.1 percent yesterday, while Spanish 10-year bond yields edged below the 7 percent level that forced Greece, Ireland and Portugal to call for outside aid, after reaching a record 7.29 percent yesterday.

 

Stopping Contagion

With European Union leaders preparing to discuss the path to closer political and economic union at a summit in Brussels on June 28-29, G-20 leaders held their second straight summit dominated by the contagion from Europe.

Meeting in the beach resort, they discussed ways to stabilize the euro area’s banks as Merkel held out against any form of joint debt to help level borrowing costs.

French President Francois Hollande, who hasn’t found a common crisis strategy with Merkel, called for faster action.

“In this permanent race between events, speculation and political decisions, political decisions must get ahead of the uncertainty,” Hollande said in Los Cabos yesterday. “It’s not acceptable that Spain, which just got a promise of support, pays interest of around 7 percent” for its 10-year bonds.

Merkel urged Spain to formulate its request for aid to its banks, saying there was “very broad agreement” at the G-20 that Spain must spell out its bailout needs as soon as the results of an outside audit of its banks becomes available.

Crisis fatigue set in Monday when President Barack Obama and the four euro-area leaders at the summit called off an after-dinner talk.

Italian Prime Minister Mario Monti said that Obama had asked him during fireworks whether they still needed to meet. The Italian leader said he then conferred with Merkel and Hollande who “also thought that the day had been more than rich enough with debate.”

Obama has blamed the financial crisis in Europe for slowing U.S. employment growth in a presidential election year. At the summit, White House spokesman Jay Carney said Obama is “encouraged” by the euro area’s latest responses, which include calls for a banking union and some form of EU-wide budget oversight.

 

U.S. Imbalances

No one thinks the EU “is the only source of the problem,” Monti said Monday. The crisis “had its origins in imbalances in other countries, including the U.S.”

The euro-area’s G-20 governments will commit to protecting the currency union, according to an excerpt of a draft of the statement that leaders will issue at the summit’s close.

Euro-area members of the G-20 “will take all necessary policy measures to safeguard the integrity and stability of the area, improve financial markets and break the feedback loop between sovereigns and banks,” according to the draft provided by an official from a G-20 government who asked not to be identified because the statement is not yet public.

Spain’s Prime Minister Mariano Rajoy, who also is attending the talks, remained largely hidden as the respite in markets after a victory for the pro-bailout New Democracy party in Greek elections on June 17 proved short-lived. Rajoy is due to hold a press briefing after 4 p.m. in Los Cabos.

Merkel didn’t signal any easing of the bailout terms for Greece, saying she asked IMF chief Christine Lagarde to send officials to Greece as soon as a government is formed.

“We will wait for the result,” Merkel said. “There’s no point in speculating. We should very tightly keep to the rules and it’s obvious that the reforms that were agreed in the past were the right thing and have to be implemented. Now I’m waiting for the troika report.”

 

Bloomberg News

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