Greeks get a government, but Europe needs confidence

The G-20 in Los Cabos, Mexico, ended mainly as a platform for urging European leaders to take decisive action on a financial crisis that is daily spiraling downward, though Greece today announced it had finalized a government coalition.

But no headlines came out of Mexico to temper the market forces now chewing away at Spain and Italy, having already abandoned Greece – and no decisions to spark more of that intangible elixir: confidence.

If there is a European G-20 takeaway, it may be the pressure exerted by global leaders, including US President Barack Obama, on Angela Merkel, chancellor of Europe’s German powerhouse, ahead of a crucial June 28 EU summit, whose purpose increasingly appears to provide a long-term solution. 

That summit, like so many before, is billed as crucial. This time it may be: It is a likely showdown over long-term questions, like “mutualization” of debt, banking unions, and federalism that were long avoided during the years of abundance prior to the financial crisis.

In a way, the underlying issue June 28 is whether Europe will nudge closer to a “United States of Europe” federal model.

"The G-20 didn't go well for anybody, especially for the Europeans," says economist Nicolas Bouzou, head of Asteres Consultancy in Paris, which advises French firms. "Emerging countries, leading investors, and debt buyers in Europe are irritated by the European decision process, which they consider too slow, without any structural reforms. They seem incapable of speaking with a single voice, even between Germany and France.”

While Merkel and new French President François Hollande agreed substantially on the idea of a financial transaction tax as a tool to finance European growth, it did not appear in the G-20 draft. Significant gaps exist between the two leaders over how to approach Europe's woes. 

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