CANNES, France — Leaders of the world’s most-industrialized nations ended two days of turbulence here, unable to finalize a bailout plan for struggling European Union economies but inching forward on steps designed to prevent a financial crisis from spreading.
“Here at Cannes, we moved the ball forward,” said President Barack Obama, who sought to spur European leaders to act but nonetheless was forced to the sidelines as the United States grapples with its own financial woes.
The two-day G-20 summit was overshadowed by drama in Greece, which at the start of the week looked headed for a public vote on, and rejection of, an EU plan to restructure the country's debts. A “no” vote would have meant expulsion from the EU, something that’s never happened, but by week’s end Greek opposition leaders had agreed to honor the tough austerity measures that will be required in exchange for banks voluntarily taking a 50 percent cut in the value of the Greek bonds they hold.
“That’s the right recipe,” Obama said. “It just has to be carried out.”
While concerns about Greek resistance to the plan eased, European leaders made little progress on the size and composition of what was supposed to be a muscular version of their current bailout fund, known as the European Financial Stability Facility. Europe had hoped to have big emerging economies such as Brazil and China take part in financing the fund, but there were no outward signs that they'd found willing contributors. Instead, European finance ministers agreed to continue meeting Monday and Tuesday.
That means that financial markets are likely to remain volatile into next week and beyond, feeding on rumors and signs of progress or setback.
Europe is in a race against time. As financial conditions there continue to deteriorate, it leaves large, important economies such as Italy and Spain more vulnerable.
“That’s why a critical piece of it is isolating them, and the rest of Europe, of course. They are hard at work on this stuff,” said a U.S. government official who was at the Cannes summit and European discussions, demanding anonymity in order to speak freely. “Greece underscored for everyone, most of all them, that they have got to work quickly to put this plan in place.”
Most worrisome after Greece is Italy, which owes creditors more than $2.6 trillion and faces huge borrowing needs in coming years. Italian Prime Minister Silvio Berlusconi’s governing coalition is teetering, and he's failed to secure support for reforms he promised his EU partners. During the G-20 negotiations, he agreed to have the International Monetary Fund monitor what Italy is doing along with the reforms it's vowed to undertake
Obama cited this commitment as a concrete sign of progress, calling it “an example of the steady confidence-building measures that need to take place to get back on track.”
A senior administration official, briefing reporters on the condition of anonymity, said that having IMF monitoring in Italy was very important in two regards:
“One is the statement of confidence that shows by the IMF and by Europe in the strength of the commitments the Italian government has made, and it shows the confidence of Italy willing to submit to a public independent assessment by the fund about progress they’re making.”
The European Central Bank was forced Friday to buy Italian bonds in an effort to stabilize the European bond market, where investors were pushing up the rate of return they were demanding on new bonds from Italy.
Obama, whose re-election fortunes could depend on the health of the global economy, acknowledged that “all of us will be affected if Europe is not growing.” He joked that he'd gotten a “crash course in European politics” since he arrived in this French Riviera town Thursday. But he said the summit had “put our economic recoveries on a firmer footing."
“I am confident that the key players in Europe — the European political leadership — understands how much of a stake they have in making sure that this crisis is resolved, that the eurozone remains intact, and I think that they are going to do what's necessary in order to make that happen,” Obama said.
Still, there was no agreement on how to fund the European Financial Stability Facility, which is designed to prevent debt problems in Greece or any of the other 27 EU nations from spilling over to neighboring countries or the global economy. Hopes that large developing nations such as China and Brazil would contribute were apparently unrealized. Brazil would like for any investment it makes to take place through the IMF in exchange for greater say on IMF matters, and China remained wary of anything that might give the United States or Europe a say over how Chinese money is spent.
Obama said he thought that “a silver lining” out of the summit might be that European leaders “recognize that there are some structural reforms, institutional modifications they need to make if Europe and the eurozone is to be as effective as they want it to be."
Obama said the crisis had exposed the weaknesses of the European system, in which the countries share a common currency and a central bank, but each country decides individually on bank regulation and tax and spending policies.
“What this has exposed is that if you have a single currency but you haven't worked out all the institutional coordination and relationships between countries on the fiscal side, on the monetary side, that that creates additional vulnerabilities,” Obama said. “And there's a commitment on the part of European leaders, I think, to examine those issues. But those are long term. In the short term, what they've got to do is just make sure that they're sending a signal to the markets that they stand behind the euro.”
(Hall reported from Washington.)
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