President Obama says that the G20 must focus on the European financial crisis
4 November 2011 Last updated at 00:04
The Group of 20 leaders have agreed to increase the firepower of the International Monetary Fund (IMF).
It means the Fund will be more able to support struggling eurozone economies.
French President Nicolas Sarkozy confirmed that most talks had revolved around the eurozone crisis.
In Greece, Prime Minister George Papandreou has defied calls to resign ahead of a vote of confidence on Friday. He has said he may scrap a plan for a referendum on the bailout deal.
Mr Papandreou’s surprise decision on Monday to hold a national vote sparked turmoil on financial markets and upset his German and French counterparts.
However, facing opposition from his own finance minister, on Thursday the prime minister said he would scrap the referendum if the conservative opposition party voted to pass the bailout package in parliament.
But the opposition as well as several government MPs have called for Mr Papandreou to quit and there are fears that he may lose the confidence vote.
The debt crisis also continues to threaten the much bigger Italian economy.
Rome has been finding it increasingly difficult to borrow money in financial markets, and the Prime Minister, Silvio Berlusconi, has been called upon by some of his own MPs to quit.
In other developments on the first day of the two-day G20 summit in Cannes:
US President Barack Obama warned that the eurozone financial crisis threatened to engulf the world
Italy is to commit to further cuts to its debts and its annual borrowing rate according to a draft communique
China indicated that it would not consider providing money to the eurozone bailout fund until the situation in Greece has been resolved
Chinese President Hu Jintao also played down the chance of allowing the value of the yuan to rise, contradicting more optimistic remarks by the US
Nicolas Sarkozy: ”Morally this (financial transaction) tax is something that we just can’t overlook in our search for solutions”
India and Canada expressed their opposition to the idea of a tax on financial transactions, something strongly backed by eurozone governments
the G20 agreed to look at the credit default swaps markets, which has been blamed by some European leaders for exacerbating the eurozone debt crisis
Eurozone leaders had wanted to present the G20 with a clear action plan, but Greece has thrown this into disarray.
Eurozone governments struck a deal with Greece last week for a debt write-down and to bolster Europe’s bailout fund and support the banking sector.
But it is feared that the package may yet unravel.
The French and German leaders, and Mr Papandreou himself, openly talked for the first time of the possibility of Greece leaving the euro if it is unable to ratify the bailout package.
On Thursday, German Chancellor Angela Merkel said that the stability of the eurozone was more important than Greece’s continued membership of it.
The view was echoed by Mr Sarkozy, who warned: “We cannot accept the explosion of the euro, which would be the explosion of Europe.”
Eurozone leaders made clear that the next 8bn-euro tranche of bailout money would not be released to Greece until after any referendum had been held.
Angela Merkel: ”The referendum is about nothing else than the question does Greece want to stay in the eurozone? Yes or no”
On Thursday, the Greek finance minister, Evangelos Venizelos – who led an internal government revolt against Mr Papandreou’s referendum plan – said the government still had enough cash to get by without the bailout loan until 15 December.
Pressure on Italy
There was continuing unease on the bond markets, with Italy and Spain forced to pay higher interest rates in order to borrow billions of euros.
Many economists fear that if Greece does exit the euro, it could lead to financial contagion, as investors and ordinary bank depositors in other eurozone countries may fear that their own government will follow suit.
The biggest fears surround Italy, whose economy and debts dwarf those of Greece.
Italy’s one-year cost of borrowing has risen to 5.1%, its highest since joining the euro, and far above the mere 0.3% interest rate that Germany must pay.
The country’s cost of borrowing has continued to rise despite interventions by the European central bank to buy up Italian debts.
Just like Athens, Rome is under pressure from European counterparts to implement further economic reforms and austerity. But also as in Greece, this is undermining the political cohesion of the government.
Six Italian government MPs wrote an open letter on Thursday calling on Mr Berlusconi to make way for a transitional government.
The Italian cabinet agreed a limited package of budget reforms at an emergency meeting on Wednesday evening.
But they failed to agree to issue a decree implementing the changes, meaning that they must now go to a confidence vote in parliament – one that Mr Berlusconi may be at risk of losing.
Agreement was reached among G20 leaders to increase the resources of the IMF, according to a draft communique seen by the Reuters news agency.
There are no details as to how much more money governments would give it.
“There is a broad view among G20 there does need to be additional financing,” said Australian Prime Minister Julia Gillard. “We will be working on it overnight and tomorrow.”
However, a White House spokesman said that the US would not be providing additional funds.
The IMF has played a key role in the eurozone crisis, providing additional money to Greece, Portugal and the Irish Republic alongside the bailout loans from other eurozone and EU governments.
French President Nicolas Sarkozy also said that countries running large trade surpluses – which include China and Japan – were willing to do more to help boost global growth.
The draft communique referred to actions by these countries to boost their spending.
However, it left open whether the big Asian exporters would allow their currencies to strengthen – something that would hurt their trade competitiveness.