European issues to dominate G20 summit
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E-mail China Daily, June 18, 2012
The global economic recovery and growth will be the most pressing topics at the G20 summit in Los Cabos, Mexico, on Monday and Tuesday, overshadowed by an election in Greece and mounting worries about Spain and Italy.
The world's biggest economies must commit to a strong Europe and could agree to further bolster the International Monetary Fund's ability to contain fallout from Europe's debt crisis, G20 summit host President Felipe Calderon of Mexico said on Saturday.
"Even though we don't expect to reach specific agreements on Europe ... I want to see language and promises which are much more oriented to a new, stronger Europe, a Europe of the 21st century," Calderon told international news agencies.
Greece's elections on Sunday could help decide whether the country will remain in the eurozone, battling a debt crisis that has dragged on for two and a half years. Calderon said it was important to be prepared for any scenario in terms of the result.
Calderon said it would be impossible to solve all of Europe's problems at the G20, but he added the region was on the right track.
In April, G20 countries pledged at least $430 billion in new loans to the IMF so it could help countries hit hardest by the debt crisis. But emerging market powers have not yet said what amounts they will contribute.
"I estimate that it could be a bigger capitalization than the preliminary agreement reached in Washington, which will be finalized here, but I don't want to speculate how much," Calderon said, adding it was 'a pity' that Canada and the United States were not chipping in.
China highlighted its expectations that the upcoming summit will facilitate the formation of a fair, inclusive and orderly international financial system and deepen international financial governance reform, Deputy Foreign Minister Cui Tiankai said on June 11.
"All member states should implement the International Monetary Fund quota and governance reform plan that were agreed upon last year and increase the representation and voice of the emerging economies," Cui said.
Chen Dongxiao, vice-president of the Shanghai Institutes for International Studies, said China is playing a greater role in promoting international financial reform, given the current circumstances.
"It is an election year in the United States and many European countries. As policy uncertainty rises, political willingness in those economies to promote IMF and monetary system reforms is getting weaker."
In recent years, the G20 has been working to solve some structural, long-term problems, such as reforming the IMF quota, regulating financial institutions and developing a global economic system that is more tolerant and inclusive.
The reform of the international financial system should still be the priority, since IMF reform, which was proposed in 2009, has not yet been fully implemented, said Chen.
Zhu Jun, deputy head of the People's Bank of China's international department, said earlier that China will "not be absent" from plans to add $430 billion in funds to the IMF.
But any capital input should be primarily based on a country's voting power in the institution, and further reform of the fund should include a greater say for emerging economies, Zhu said.
Li Ruogu, chairman and president of the Export-Import Bank of China, said the G20 must come up with specific programs to improve the current dollar-centric international monetary system.
"If we just say what should be changed but never come up with specific plans, it won't work. The G20 must create a working group to put forward specific proposals to leaders," Li said, adding that changes to the IMF's special drawing rights system might be a feasible method.
The SDR is an international reserve asset, created by the IMF in 1969, to support the expansion of international trade. It is a unit of account derived from the values of the dollar, yen, pound and euro.
Economists and officials have urged the IMF to include the currencies of emerging economies, such as the yuan, in the SDR basket, as they play an increasingly important role in the global economy.
US President Barack Obama wants to emerge from Mexico with signs that the European players at the table, led by Germany, are moving on their own agenda. That means pursuing a banking union to match the monetary union linking the eurozone, taking steps to keep borrowing costs down in the weakest nations and injecting life into economies with growth plans involving public money.
As US Treasury Undersecretary Lael Brainard put it, the focus in Mexico will be about "ensuring our European partners are escalating their response" to stabilizing the situation.
Outgoing World Bank President Robert Zoellick will warn the G20 summit that Europe risks sparking a financial meltdown that would have desperate consequences for developing countries, he told the British newspaper The Observer.
"Europe may be able to muddle through, but the risk is rising," the 58-year-old American said.
'There could be a Lehman moment if things are not properly handled.'
The 2008 collapse of the US financial services firm Lehman Brothers — one of Wall Street's most prestigious firms — after its risky bets on the US housing market soured, sparked global financial panic.
The head of the Organization for Economic Cooperation and Development warned G20 members on Saturday they may need to deploy "overwhelming force" to confront Europe's sovereign debt crisis.
Speaking in Los Cabos ahead of the G20 summit, OECD Secretary-General Angel Gurria said the eurozone's response to the trouble had not been adequately coordinated.
"Europe has the means, the institutions, the vigor and the power ... but its will has not been transmitted in the correct way, because of the problems in the governance of its institutions," he warned at a news conference.
European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso said in a joint letter to the leaders of EU members that "we should deliver a strong and credible message on growth at the Los Cabos summit".
