Greeks get a government, but Europe needs confidence
The G-20 ended with growing global pressure on German chancellor Angela Merkel to work toward a long-term solution for Europe's sinking economies.
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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.Skip to next paragraph
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Debates in Los Cabos largely turned on austerity versus growth, and the German model of balanced budgets versus the Keynsian model of stimulus, to answer Europe’s rising unemployment and banking debt.
But Europe has debated this for more than a year, with little change. At the G-20, Ms. Merkel held firm on the need for the new Greek government to adhere to austerity-based bailout agreements.
Meanwhile, across the Atlantic, the issues continue to compound: Spain, Europe’s No. 4 economy is twisting in the wind with unsustainable bond rates; it is scheduled to sell two- and three-year notes tomorrow, and if rates don’t change, Spain may only have a few more weeks of solvency, financial analysts say.
Italy, the No. 3 economy, is also on the ropes. Italy's caretaker prime minister, Mario Monti, suggested at the G-20 that the two eurozone rescue funds begin buying debt from stricken European states.
Meanwhile, Greece continues to simmer. A center-right Greek coalition was finally agreed upon today and the new prime minister, Antonis Samaras of the New Democracy party, was sworn in. But its main initial task will not be to hew to the EU bailout terms, which is what European leaders understood, but to “renegotiate" the agreement, according to coalition partner Socialist leader Evangelos Venizelos, speaking today. That sets up a de facto showdown in Europe among those less and more willing to give Greece flexibility.
Mr. Venizelos vows a "major fight" at the June 28 meeting for the release of bailout funds on better terms. By the end of July, Greece will not be able to pay public salaries.
As Europe faces the possibility of a broader meltdown, some analysts say it now desperately needs both long-term and short-term answers.
The $125 billion bailout of Spain’s banks by the EU stability fund provided only a day or two of relief from markets; last week, Spain’s 10-year bonds clicked above an unsustainable 7 percent.
“Even if the debate on austerity vs. growth could be settled, we have moved past the point where a growth package would make a difference,” says Sony Kapoor of Re-Define, a Brussels economic think tank. “We must have a longer-term solution, a fiscal union. We have no long-term plan, and that is where we are headed. The period of stability packages has passed and the G-20 offered really nothing.”
A one-size-fits-all statement issued from the G-20 read: "We are united in our resolve to promote growth and jobs…. Strong sustainable and balanced growth remains the top priority of the G-20, as it leads to higher job creation and increases the welfare of people across the world."