Sigh of relief at G20 summit turns to angst
LOS CABOS, Mexico — World leaders’ relief at Greek voters rejection of a government that could have forced the country’s exit from the European currency union evaporated Monday with the continued severity of Europe’s economic problems.
Spain’s borrowing costs climbed past levels where Greece and two other European countries had been forced to seek bailouts. Financing the Spanish government would likely be too expensive for the eurozone bailout funds to handle. Spain’s (euro) 1.1 trillion ($1.39 trillion) economy is bigger than those of Greece, Ireland and Portugal combined.
Heads of state began bilateral meetings ahead of the G20 summit with the crisis facing Spain, Greece, Italy and other European economies at center stage.
The Spanish government bemoaned the rise in its borrowing costs and said they didn’t correspond to the reality of Spain’s economic strength.
“We in the government are convinced that the current situation of punishment in the markets, what we’re suffering from today, doesn’t correspond with the efforts, or the potential, of the Spanish economy,” Spain’s economy minister Luis de Guindos said. “This is something that will have to be recognized in the coming days and weeks.”
Both President Barack Obama and Mexican President Felipe Calderon of the host country downplayed chances for concrete results going into the summit.
Obama on Monday was meeting Russian President Vladimir Putin and German Chancellor Angela Merkel, whose country plays a key role in brokering a solution to Europe’s debt crisis.
Calderon tried to give a more optimistic message over the weekend, saying that he expects the G20 to produce record donations to the International Monetary Fund, exceeding member states’ pledges of $430 billion this year and bolstering its ability to conduct more bailouts in Europe.
There were, however, clear signs of deep divisions over this relatively straightforward measure. Calderon said the U.S. would decline to contribute, a decision in line with Washington’s position that more IMF money would be a de-facto U.S. bailout of Europe. It was unclear how much money would come from emerging economies such as Brazil and India, which have been pushing for more say in the governance of the IMF in exchange for greater contribution.
The morning’s concerns were a sharp contrast from the relief on Sunday night after the Greeks voted to support a pro-bailout government.
“What’s happened in Greece is good news,” Spanish Prime Minister Mariano Rajoy said. “The Greek citizens have done the right thing. The European Union is going to help Greece, because the European Union is and must be a joint project that seeks the well-being and the material improvement of all European citizens.”
Chinese Vice Finance Minister Zhu Guangyao stressed the importance of stability in the wake of the Greek vote.
“We hope this new government will be on a solid footing and can maintain stability since stability is important to promoting development,” Zhu said. “We believe that Greece should stay within the euro zone.”