G20 powers confront eurozone debt crisis at summit

Obama is expected to have a tough message for his hosts in Cannes
© AFP/POOL Philippe Wojazer

CANNES, France (AFP) – Leaders of the world’s most powerful economies faced fresh turmoil Thursday at a G20 summit dominated by a titanic debt crisis which could force Greece from the eurozone and drag down Italy.

After France and Germany tried to strong-arm Athens into accepting a bailout — and with the Greek government tottering — Italy saw its borrowing costs hit record highs amid fears over Europe’s bail-out mechanism.

French and Spanish bond sales also saw wider spreads, as markets lost confidence in last week’s hastily compiled plan to end the debt crisis.

European stock markets plunged then recovered just as sharply, as storm clouds gathered over a summit opening ceremony in the rain-swept French resort of Cannes, where leaders implored the eurozone to put its house in order.

Italy’s long-term borrowing costs hit 6.4 percent, which observers warned was unsustainable, and markets across Europe opened down between 1.5 and 2.5 percent amid fears over the growing threat of a Greek default.

G20 host President Nicolas Sarkozy and his German counterpart Chancellor Angela Merkel had hoped to reassure their partners by forcing Greece’s Prime Minister George Papandreou to quickly implement an EU bail-out deal.

He was summoned to pre-summit talks Wednesday and agreed to hasten his planned referendum on the plan, insisting Greece wanted to stay in the euro, but he flew home to find his parliamentary majority evaporating.

Merkel and Sarkozy had warned Greece would not receive “one more cent” of the IMF and EU’s next planned eight-billion euro ($11 billion) aid instalment until he wins the referendum, which he wants to hold on December 4.

Without these funds, senior officials in Cannes said, Greece might not be able to pay government employees after this date — and could face a messy debt default which would force it to leave the European single currency.

“We do not want to let the euro be destroyed, we do not want to let Europe be destroyed,” Sarkozy warned, standing with Merkel. “The Greek people are free to choose, but we are accountable for the stability of the eurozone.”

Papandreou insisted it is the “democratic right” of the Greeks to vote on the bailout plan — which foresees more tight austerity measures — but added: “I believe that the Greek people want to be in the eurozone.”

He conceded however, that his referendum puts this at stake. “This is a question of whether we want to remain in the eurozone. That’s very clear,” he said.

Greece could face a greater calamity than ejection from the single currency. In Brussels, the European Commission warned there is at present no legal way of leaving the euro without quitting the European Union as a whole.

Papandreou’s brinkmanship did not appear to have strengthened his position.

Two lawmakers from Greece’s ruling Socialist party have said they will abstain from a confidence vote Friday, robbing Papandreou’s government of a majority, Greece’s NET network reported.

Opposition leaders called for a new interim government to be formed to accept the bail-out without recourse to a referendum.

And Papandreou was further weakened when two of his ministers, including Finance Minister Evangelos Venizelos, came out against the referendum, which he announced on Monday to widespread anger and disbelief in EU capitals.

US President Barack Obama greeted cheering crowds of French wellwishers as he arrived in Cannes’s Palais des Festivals — better known for hosting the town’s annual film festival — for pre-summit talks with Sarkozy.

“I’d like to pay tribute to President Obama’s understanding, including on subjects like the tax on financial activities,” Sarkozy said, implying Washington is moving towards Europe’s plan to make markets bear the burden.

But Obama was expected to have a tough message for his hosts. The White House said it wanted “unanimity of purpose” to emerge from the G20, and Beijing too has warned that its support will depend on Europe showing more solidarity.

“The most important aspect of our task is to resolve the financial crisis here in Europe,” Obama said after his Sarkozy meeting.

He conceded the EU “has made some important steps towards a comprehensive solution,” but “here the G20 will have to flesh out the details on how the plan will be fully and decisively implemented.”

“In Europe, we need to avoid a chain reaction triggered by the budgetary problems in certain countries,” Japanese Prime Minister Yoshihiko Noda warned.

China’s President Hu Jintao dined with Sarkozy late Wednesday, after which officials said they might contribute $100 billion to Europe’s bail-out fund, but only if they were convinced the investment was safe.