CANNES, France – Leaders of the world’s most industrialized nations ended two days of turbulence here, unable to finalize a bailout plan for struggling European Union economies but inching forward on steps designed to prevent a financial crisis from spreading.
“Here at Cannes, we moved the ball forward,” said President Barack Obama.
The two-day G-20 summit was overshadowed by drama in Greece, which at the start of the week looked headed for a public vote on, and rejection of, an EU plan to restructure the country’s debts. A “no” vote would have meant expulsion from the EU, something that’s never happened, but by week’s end Greek opposition leaders had agreed to honor the tough austerity measures that will be required in exchange for banks voluntarily taking a 50 percent cut in the value of the Greek bonds they hold.
While concerns about Greek resistance to the plan eased, European leaders made little progress on the size and composition of what was supposed to be a muscular version of their current bailout fund, known as the European Financial Stability Facility. Europe had hoped to have emerging economies such as Brazil and China take part in financing the fund, but there were no outward signs that they’d found willing contributors. Instead, European finance ministers agreed to continue meeting Monday and Tuesday.
That means that financial markets are likely to remain volatile into next week and beyond, feeding on rumors and signs of progress or setback.
Europe is in a race against time. As financial conditions there continue to deteriorate, it leaves large, important economies such as Italy and Spain more vulnerable.
“That’s why a critical piece of it is isolating them, and the rest of Europe, of course. They are hard at work on this stuff,” said a U.S. government official who was at the Cannes summit and European discussions. “Greece underscored for everyone, most of all them, that they have got to work quickly to put this plan in place.”
Most worrisome after Greece is Italy, which owes creditors more than $2.6 trillion and faces huge borrowing needs in coming years. Italian Prime Minister Silvio Berlusconi’s governing coalition is teetering, and he’s failed to secure support for reforms he promised his EU partners. During the G-20 negotiations, he agreed to have the International Monetary Fund monitor what Italy is doing along with the reforms it has vowed to undertake.
The European Central Bank was forced Friday to buy Italian bonds in an effort to stabilize the European bond market, where investors were pushing up the rate of return they were demanding on new bonds from Italy.