G20 backs Europe’s plans for overhaul to fight crisis

Reuters: Europe won support from world leaders on Tuesday for an ambitious but slow-moving overhaul of the euro zone, even as pressure built in financial markets for quicker solutions to its debt crisis that threatens the world economy.

European countries showed at a Group of 20 summit they were considering concrete steps to integrate their banking sectors, a major reform long sought by the United States and other nations to break the cycle of highly indebted countries trying to rescue banks, which only pushes governments ever deeper into debt.

U.S. Treasury Secretary Timothy Geithner said a stronger framework for a fiscal and banking union to underpin the common currency would help restore Europe’s economic growth and lower borrowing costs for deeply indebted euro zone countries.

“ What they’re also trying to do is to make sure that, in the very near term, they put in place a set of measures that can help make sure that they’re supporting the financial system of Europe, and they are helping make sure that the countries that are undertaking these reforms, like Spain and Italy, can borrow at sustainable interest rates,” he said.

Canadian Prime Minister Stephen Harper, a critic of Europe’s progress to date, said the European Union now is addressing all the key issues required to get to the root of its crisis, ahead of an EU summit next week.

“What will be important, what we’ll be watching for next week and going forward will be the concerted, coordinated action that will actually make these things happen,” he said.

Financial markets have yet to be convinced.

Spain, the euro zone’s fourth-largest economy, risks needing a full-blown international rescue as its longer-term debt yields hover above 7 percent, a level that has forced other euro countries to seek bailouts.

French President Francois Hollande said he and German Chancellor Angela Merkel, central players in a European crisis that has run for more than two years, were determined that the euro zone come up with its own solutions.

“Mrs. Merkel and I know that Europe must have its own response,” he said on the sidelines of the G20 at this Pacific Ocean resort. “It must not be given to us from the outside.”

The tensions over the world economy and the round-the-clock discussions contrasted with the laid-back atmosphere of Los Cabos, a beach resort at the tip of Mexico’s Baja California. The summit declaration was drafted at a hotel next to the adults-only, clothes-optional Desire Resort And Spa.

G20 leaders and the International Monetary Fund have pressured Europe, the world’s richest region, to throw more support behind indebted euro-zone members and lay out a clear timeline for building financial, fiscal and political union -- steps they view as crucial to saving Europe’s monetary union.

Greece, Ireland and Portugal, overwhelmed by debt, have resorted to international bailouts and the euro zone last week pledged up to 100 billion euros to shore up Spain’s banking system. But investors see these as stop-gap measures until Europe commits to deep budgetary and political integration.

This would require euro-zone nations to give up more sovereignty and share economic risk, steps that EU leaders say will take time among the 17 democracies that share the currency, especially for Germany which would foot the largest bill.

The dangers that Europe’s escalating debt crisis would drive the global economy back into recession for the second time in less that four years dominated the summit of G20 leaders of industrialized and developing nations, which represent over 80 percent of world output.

Among commitments in a draft G20 communique obtained by Reuters was a pledge to consider concrete steps towards a “more integrated financial architecture” in Europe that would include common banking supervision, resolution of failed banks and guarantees for bank depositors.



These steps would help break the link between government debt and banking problems. Combined with fiscal discipline, measures to support growth and financial stability, they represent “important steps toward greater fiscal and economic integration that lead to sustainable borrowing costs,” the draft communique said.