Europe leaders face pressure at G-20 to stamp out crisis

Mario Draghi says the ECB will continue to provide liquidity to solvent banks. Photo / AP
Mario Draghi says the ECB will continue to provide liquidity to solvent banks. Photo / AP

European leaders face pressure at the Group of 20 summit in Mexico to halt market uncertainty and stamp out the debt crisis as global partners hint at help to keep the world economy afloat.

As elections in Greece reduced the immediate risk of the euro area's breakup, China and Indonesia signalled growing exasperation with more than two years of European crisis-fighting that has failed to stem the threat of global contagion.

World Bank president Robert Zoellick said policy makers bungled their attempt to rescue Spain's banks.

"I hope that one way or another our European colleagues will reach an agreement on rigorous methods to manage the crisis," Indonesian President Susilo Bambang Yudhoyono said at the Mexican resort of Los Cabos.

"The absence of such methods will have unsettling consequences."

The two-day G-20 summit that started yesterday kicks off a week of crisis meetings after Spain this month became the fourth euro-region nation to seek a bailout amid the weakest global economy since the 2009 recession.

Stocks and the euro rose after Alexis Tsipras, the Greek Syriza party leader who advocates reneging on bailout terms, failed to win yesterday's parliamentary elections, reducing the risk of Greece becoming the first country to exit the 17-nation currency region.

A Group of Seven nations statement said it looked forward to working with the next Greek Government.

German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy discussed the Greek election outcome by phone as they headed to Mexico.

The heads of the four biggest euro economies next meet in Rome on June 22, before a full European Union summit in Brussels on June 28-29 that will discuss paths to closer political and economic union in a bid to regain market confidence.

As countries from the United States to China prod euro-area leaders to keep the crisis from spreading, a boost in the International Monetary Fund's global financial backstop is moving back into focus after Merkel called for the rest of the world to do more.

The G-20 will boost the US$430 billion ($543 billion) firewall the International Monetary Fund announced in April, Mexican President Felipe Calderon, the meeting's host, said at the weekend.

"I estimate that there will be a larger capitalisation than the pre-accord reached in Washington, which will be finalised here," Calderon said.

The summit's final statement would endorse steps taken by Europe to achieve closer monetary and fiscal union, he said yesterday.

European stocks advanced for a second week last week amid speculation that central banks would take steps to stimulate the global economy.

The Stoxx Europe 600 Index has declined 10 per cent from its high on March 16 as Spain's call for aid sent Italy's borrowing costs higher.

Greek election winner Antonis Samaras, who said the country chose "to stay anchored with the euro", yesterday began his second bid in six weeks to form a coalition.

Euro-area finance chiefs pressed him to form a government that would keep bailout aid flowing.

European officials indicated a willingness to ease the terms of rescue loans as long as Greece, with just weeks of cash in the bank, re-commits to their austerity demands.

European Central Bank president Mario Draghi said the ECB would continue to provide liquidity to solvent banks.


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