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Europe crisis dominates G20 Paris meeting
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Reuters-The euro zone debt crisis will dominate a summit of G20 finance chiefs and central bank heads in Paris, with a downgrade of Spain’s credit rating highlighting the risk of a much larger economy than Greece coming under threat.
French and German officials are trying to put flesh on the bones of a crisis resolution plan in time for a European Union summit on Oct. 23 and parallel discussions are taking place on the need to give the International Monetary Fund more firepower.
South Africa’s finance minister said the IMF and euro zone’s EFSF rescue fund were ill equipped to deal with a worsening euro crisis that spreads beyond Greece.
“The resources available in the EFSF and IMF are not adequate if the contagion is going to spread any further,” Pravin Gordhan said in Paris.
Fears about the damage a default by Greece – and possibly others – could inflict on the financial system have driven a confidence-sapping bout of market volatility since late July, with global stocks falling 17 per cent from their 2011 high in May.
Underlining the challenge for European policy makers, Standard and Poor’s cut Spain’s long-term credit rating, citing the country’s high unemployment, tightening credit and high private sector debt.
“This meeting takes place in a context where the absolute priority for the success of the G20 is to find the elements for the stability of the euro zone,” a source at the French finance ministry said.
With impatience growing, finance chiefs from outside the bloc are expected to speak frankly.
“This meeting is an important staging point before (a Nov. 3/4 G20 leaders summit in) Cannes and a valuable opportunity to put pressure on the euro zone,” said a non-euro zone G20 delegate.
Unlike in 2009 when the G20 launched co-ordinated stimulus to pull the world out of crisis, the rest of the world is chafing at Europe’s slow response while Washington and Beijing are sparring over the yuan currency.
A Franco-German crisis plan is likely to ask banks to accept bigger losses on their Greek debt than the 21 per cent spelled out in a July plan for a second bailout of Athens, which now looks insufficient.
“It will be more, that’s more or less certain,” French Finance Minister Francois Baroin, who is hosting the Paris talks, said in an interview on Europe 1 radio.
It should also lay out a system for recapitalizing banks and plans to leverage the euro zone’s European Financial Stability Facility to give it more punch.
Japanese Finance Minister Jun Azumi said he would share with his G20 counterparts Japan’s “bitter experience” of failing to contain its 1990s banking crisis by doing too little, too late.
Whilst the EFSF has the resources to cope with bailouts for Greece, Portugal and Ireland, it would be overwhelmed by the need to rescue a bigger economy such as Italy or Spain which have come under market attack.
“We see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” S&P said.
The most effective method would be to turn the EFSF into a bank so it could draw on European Central Bank resources. Both Germany and the ECB are opposed to that.
The G20 may refer to the euro crisis in its communiqué and in closing news conferences on Saturday evening, but little else of substance is likely to be inked in with the EU summit in nine day’s time the make-or-break moment.
G20 sources said most BRICS economies were in favour of bolstering the IMF’s capital as a crisis-fighting tool.
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