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Draft: G-20 will present plan for economic global growth
LOS CABOS, Mexico -- The leaders of the world's largest economies have agreed to step up their efforts to boost growth and job creation, which they call the top priority in fighting the effects of the European economic crisis, according to a draft of the statement to be released today at the end of the Group of 20 annual meeting.
The draft obtained by The Associated Press on Monday places the G-20 on the side of those who have been arguing for a focus on job creation, including through government spending, instead of the budget cutbacks and austerity pushed most notably by German Chancellor Angela Merkel.
Germany feels that it has been unfairly burdened by its large contributions to international bailouts of economically weaker European countries that overspent for years and, in exchange, it has been insisting on steep cutbacks from aid recipients such as Greece. Those cutbacks have led to dramatic economic hardship for voters in Greece and other countries. A growing number of European countries having been advocating spending and growth, not austerity, and the G-20 statement appears to place the group of the world's largest economies into that camp.
"We are united in our resolve to promote growth and jobs," the draft says, declaring that the leaders will announce the "coordinated Los Cabos Growth and Jobs Action Plan" to achieve those goals, although the draft does not provide details of the plan.
It throws its support specifically behind greater government spending as a response to a worsening global economy, saying that countries with the resources "stand ready" to take fiscal action.
The plan says the Obama administration pledged to prevent sharp tax increases and government spending cuts from kicking in at the end of the year, as scheduled under current law, to avoid sending the U.S. into another recession.
As G-20 officials wrangled over last-minute changes in the wording of the statement, European leaders at the summit struggled to reassure the world Monday that they were on the path to solving their continent's relentless economic crisis, defending the pace of their response even as market pressures pushed Spain closer to needing a bailout that would strain the world's ability to pay.
Less than 24 hours after an election that eased fears of a Greek exit from the shared euro currency, the interest rate that Spain pays on its debt surged above the 7 percent level that had forced Greece, Portugal and Ireland to seek international help.
The prospect of a bailout for Spain's $1.39 trillion economy immediately eclipsed the good feeling at the G-20 from the election, and it dwarfed the host country Mexico's expressions of confidence that the meeting of the world's largest economies would lead to more than $430 billion in concrete commitment for the International Monetary Fund as insurance against future bailouts.
The Spanish delegation to the G-20 bemoaned the rise in the country's borrowing costs and said the market reaction didn't correspond to the reality of Spain's economic strength.
The day was filled with statements from a variety of world leaders calling for cooperation and for Europe to solve its crisis at a summit that is expected to produce few concrete results.
"Now is the time as we've discussed to make sure all of us join to do what's necessary to stabilize the world financial system, to avoid protectionism, to both grow the economy and create jobs while taking a responsible approach," U.S President Barack Obama said after meeting with the host, Mexican President Felipe Calderon.
The International Monetary Fund said in a staff report Monday that Europe was unlikely to conquer its budget problems without a greater focus on policies that promote growth. European governments should make it easier to hire and fire workers, simplify government regulations of the economy, and make it easier for workers to move to other European countries for jobs, the fund said, reforms could boost growth in the region by 4.5 percent over the next 5 years.
"Fostering growth is always important; in the euro area it has become urgent," the report said.
Meanwhile, leaders from a group of fast-growing developing nations said Monday they would make good on past pledges to contribute more funds to the IMF, bolstering its ability to conduct more bailouts in Europe.
Brazil, Russia, India and China were among a group of about 30 countries that pledged in April to contribute more than $430 billion to the IMF, almost doubling its lending capacity. The euro area nations pledged about $200 billion, while Japan pledged $60 billion.
European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy urged markets to focus on a European summit at the end of the month that they said would help the continent move closer to deeper economic and political integration to match its single currency. The lack of common rules for the countries sharing the euro currency is seen as the primary cause of the current crisis. The EU summit would bring progress on common banking rules for member nations, Barroso and Van Rompuy said, although they cautioned, in sometimes defensive tones, against expectations of short-term results.
"I can assure you that even if we in June will not take definitive decisions, the path, the trajectory is very clear for everybody," Van Rompuy said. "In this case, the pace is less important than the decision we make."
Barroso took a more aggressive tone, declaring that "the crisis originated in North America" with the collapse of real-estate-linked financial products and taking a subtle dig at China and other non-democratic countries at the summit.
"Not all the members of the G-20 are democracies, but we are democracies, and we take decisions democratically. Sometimes this means taking more time," he said. "Frankly we are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy, because the European Union has a model that we may be very proud of."
British Prime Minister David Cameron urged European countries to stay the austerity course to build investor confidence. He also warned against responding to economic turmoil by imposing protectionist measures.
Specifically, the Conservative government leader said a free trade deal between the United States and the European Union "could provide an enormous boost across the world."
"I think there is a threat of a failure to follow through with a long-term reform, particularly the banking reforms and the financial services reforms that were pioneered by the G-20," Cameron said, "which if we don't follow through could lead us to a repeat of the 2008 crisis all over again."
Obama met Monday with Russian President Vladimir Putin to discuss differences between the two countries on Syria and Iran. Obama also met with German Chancellor Angela Merkel, whose country plays a key role in brokering a solution to Europe's debt crisis.
Even the good news about Greece was overshadowed by lingering disagreement over the terms of the country's international bailout, which required harsh cutbacks in spending that many in Greece blame for widespread hardship suffered by ordinary citizens.
The parties that Europe hopes will form Greece's next government are committed to the bailout, but want to renegotiate some of the stricter terms.
However, Merkel indicated that finding room for negotiation might not be so easy, saying Greece had to hold its side of the bargain and that "we have to count on Greece sticking to its commitments."
Calderon over the weekend started pushing over the weekend the optimistic message that he expects the G-20 to produce record donations to the IMF. It wasn't clear until the G-20 meeting, however, how many nations would actually come through on their commitments. The so-called BRIC nations have been demanding greater control of the IMF in exchange for their increasing share of contributions.
Brazil, Russia, India and China said Monday that the contributions would take place under the assumption that the IMF would give developing countries more of a say in how its decisions are made. The IMF, which is dominated by the United States, Europe, and other developed economies, agreed in 2010 to boost the voting power of developing nations. But the reforms haven't yet been fully implemented.
Calderon said the U.S. would decline to contribute, a decision in line with Washington's position that more IMF money would be a de-facto U.S. bailout of Europe.
The idea of developing countries such as Brazil being asked to contribute more to the IMF to save European economies marked an ironic turn-around for Latin America, which had long depended on IMF funding fixes and endured prescriptions for reform, said Eric Farnsworth, vice president of the business group the Council of the Americas.
Developing countries, which have largely avoided economic meltdown, could take advantage of the crisis to finally win more decision-making power in the IMF and other organizations after spending years asking for a greater say, Farnsworth said.
Complicating that scenario, however, is economic softening in Brazil, China and other developing countries, which are struggling with slowing growth amid global uncertainty.
"Europe is a global problem, and countries that agree to global governance should be expected to participate in a way that contributes to the collective good," Farnsworth said.