Brussels, 31/10/2011 (Agence Europe) - The eurozone countries that will be attending the G20 summit in Cannes (France) on Thursday 3 and Friday 4 November, will explain to the other leading and emerging economies around the world what has been done to deal with the eurozone sovereign debt crisis since May 2010 (see EUROPE10483). The summit will also provide an opportunity to examine work on macroeconomic issues and an action plan is expected to set out detailed recommendations on how to deal with the slowdown in the world economy.
The president of the European Council, Herman Van Rompuy, and the president of the European Commission, Jose Manuel Barroso, say in a joint letter to the G20 leaders that the G20 has the impression that if Europe does not deal with the eurozone sovereign debt crisis, then the world economy will be severely affected. and the EU will be attempting to demonstrate that it is determined to do everything necessary to get over the current problems. They say the eurozone will continue to clean up public finance although as a proportion of GDP, its deficit and debt are lower than those of the United States and Japan. The two European leaders say a sustainable solution has been put forward for Greece, involving giving the EFSF bailout fund more clout to prevent the crisis spreading. European banks will see a fast recapitalisation to the tune of €110 billion.
Europe began its charm offensive on Thursday 27 October, in the direct aftermath of the eurozone summit. The G20 host, French President Nicolas Sarkozy, phoned his Chinese counterpart Hu Jintao to explain how the eurozone was planning to deal with the crisis. “If the Chinese, who have 60 percent of global reserves, decide to invest in the euro instead of the dollar, why refuse?” said Sarkozy in Brussels. Non-EU investors will be invited to buy EFSF bonds and contribute to funding vehicles set up by the IMF to feed into the EFSF, but before putting their hands in their pockets, they will want more details about how the funding mechanisms will operate, demanding collateral and other concessions.
Emerging economies want to play a bigger part at the IMF and therefore China is applying pressure to get the EU to recognise it as a proper market economy.
Economic situation. Europe will not be able to hide its economic problems from its trading partners in Cannes, but it will be pointing out that other parts of the world are not immune from economic problems. Van Rompuy and Barroso say they will be asking the G20 to make a constructive contribution to dealing with global challenges. The United States has launched a new economic recovery plan and has difficult-to-finance debts and public deficit to deal with. China's economy is export-driven thanks to the artificially low Chinese currency and is finding it hard to generated demand domestically. Brazil's economy is growing apace and its high levels of cash flow are driving inflation. Growth is stagnant in the south of the EU, but flourishing in Germany.
According to OECD figures published on Monday 31 October, G20 growth rates vary wildly from 1.6% in 2011 and 0.3% in 2012 in the eurozone, 1.7% and 1.8% in the United States and 7.2% and 6.7% in emerging economies. The OECD urges the G20 to take strong measures to boost confidence in the global economy.
The G20 will adopt an action plan of measures for each of its members on how to deal with the macro economic problems. The idea is to be specific and tangible without laying blame, explained an EU official. “The G20's response has two key elements. Firstly, those of us who have been working to consolidate our fiscal position cannot change course. But those countries that have the margin to incentivise economic activity have to adopt urgent stimulus plans. If not, the global economy will be affected”, commented Spanish Prime Minister José Luis Rodríguez Zapatero in Assunción (Paraguay) at the weekend, where he was attending a Spanish-Latin American summit.
The world's leaders will be examining reform of the financial system and supervision of big financial conglomerates in the light of a report by the IMF's Financial Stability Committee. Europe will brief its partners on progress in recapitalising banks (the Basel III Directive) and regulations governing derivatives and commodities.
FTT. Barroso will unveil the EU's plan to introduce a Financial Transaction Tax (FTT), which is being promoted by France and Germany. Six months from presidential elections, Sarkozy is aiming high and might be tempted to try and win huge symbolic success in this domain. He says that everyone agrees that the financial industry should be made to pay and France is determined to ensure that at least a handful of leading countries introduce an FTT. German Finance Minister Wolfgang Schäuble said the eurozone could be a pioneer for the tax, but there is strong opposition to the idea from the United Kingdom and Sweden within the EU along with the United States, Canada, China and Russia. (MB/transl.fl)