In hopes of steadying eurozone, G-20 leaders to advocate growth proposals
European leaders' response to the economic crisis has failed to calm markets, but G-20 leaders are hoping that their strong backing of growth policies will bring some relief.
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The plan says the Obama administration pledged to prevent sharp tax increases and government spending cuts from kicking in at the end of the year, as scheduled under current law, to avoid sending the US into another recession.Skip to next paragraph
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As G-20 officials wrangled over last-minute changes in the wording of the statement, European leaders at the summit struggled to reassure the world Monday that they were on the path to solving their continent's relentless economic crisis.
The cost of bailing out Spain's €1.1 trillion ($1.39 trillion) economy would likely outstrip current global ability, even after the International Monetary Fund announced late yesterday that a round of contributions had increased its lending capacity to $456 billion, exceeding a round of pledges made in April.
The Spanish delegation to the G-20 bemoaned the rise in the country's borrowing costs and said the market reaction didn't correspond to the reality of Spain's economic strength.
The IMF said in a staff report yesterday that Europe was unlikely to conquer its budget problems without a greater focus on policies that promote growth. European governments should make it easier to hire and fire workers, simplify government regulations of the economy, and make it easier for workers to move to other European countries for jobs, the fund said, reforms could boost growth in the region by 4.5 percent over the next 5 years.
European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy urged markets to focus on a European summit at the end of the month that they said would help the continent move closer to deeper economic and political integration to match its single currency. The lack of common rules for the countries sharing the euro currency is seen as the primary cause of the current crisis.
The EU summit would bring progress on common banking rules for member nations, Barroso and Van Rompuy said, although they cautioned, in sometimes defensive tones, against expectations of short-term results.
"I can assure you that even if we in June will not take definitive decisions, the path, the trajectory is very clear for everybody," Van Rompuy said. "In this case, the pace is less important than the decision we make."
Barroso took a more aggressive tone, declaring that "the crisis originated in North America" with the collapse of real-estate-linked financial products and taking a subtle dig at China and other non-democratic countries at the summit.
"Not all the members of the G-20 are democracies, but we are democracies, and we take decisions democratically. Sometimes this means taking more time," he said. "Frankly we are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy, because the European Union has a model that we may be very proud of."
President Barack Obama met with a series of European leaders including Merkel.
Even the good news about Greece was overshadowed by lingering disagreement over the terms of the country's international bailout, which required harsh cutbacks in spending that many in Greece blame for widespread hardship suffered by ordinary citizens.
The parties that Europe hopes will form Greece's next government are committed to the bailout, but want to renegotiate some of the stricter terms.
However, Merkel indicated that finding room for negotiation might not be so easy, saying Greece had to hold its side of the bargain and that "we have to count on Greece sticking to its commitments."