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Obama calls for urgent debt deal G20 'deal to increase IMF money'
(about 1 hour later)
   
US President Barack Obama has warned there is still work to be done on how the eurozone can end a financial crisis that threatens to engulf the world. The Group of 20 leaders have agreed to increase the firepower of the International Monetary Fund (IMF).
Speaking on Thursday ahead of the opening of the G20 summit in France, he said that the most important topic on the agenda was Europe's problems. It means the Fund will be more able to support struggling eurozone economies.
Eurozone leaders wanted to present the G20 with a clear action plan, but Greece has thrown this into disarray. French President Nicolas Sarkozy confirmed that most talks had revolved around the eurozone crisis.
Amid political chaos in Athens a mooted bailout referendum may now be scrapped. In Greece, Prime Minister George Papandreou has defied calls to resign ahead of a vote of confidence on Friday. He has said he may scrap a plan for a referendum on the bailout deal.
Prime Minister George Papandreou's surprise decision to hold a national vote on Greece's latest bailout package sparked further uncertainty about whether Europe could resolve its crisis. Mr Papandreou's surprise decision on Monday to hold a national vote sparked turmoil on financial markets and upset his German and French counterparts.
However, he told parliament on Thursday that if the conservative opposition party voted to pass the bailout package, the referendum would not be needed. However, facing opposition from his own finance minister, on Thursday the prime minister said he would scrap the referendum if the conservative opposition party voted to pass the bailout package in parliament.
Meanwhile, the crisis continues to threaten Italy, whose Prime Minister, Silvio Berlusconi, has been called upon by some of his own MPs to quit. But the opposition as well as several government MPs have called for Mr Papandreou to quit and there are fears that he may lose the confidence vote.
Chinese reticence The debt crisis also continues to threaten the much bigger Italian economy.
Leaders are in Cannes at the G20 meeting of the world's biggest economies to discuss global growth and stability. Rome has been finding it increasingly difficult to borrow money in financial markets, and the Prime Minister, Silvio Berlusconi, has been called upon by some of his own MPs to quit.
Mr Obama said: "The most important task over the next two days is to resolve the financial crisis in Europe. China reticence
"Here at the G20, we need to flesh out how the plan will be fully and decisively implemented." In other developments on the first day of the two-day G20 summit in Cannes:
Other countries joined the chorus, with a South African government spokesman telling the eurozone to "get its act together".
  • US President Barack Obama warned that the eurozone financial crisis threatened to engulf the world
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  • Italy is to commit to further cuts to its debts and its annual borrowing rate according to a draft communique
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  • China indicated that it would not consider providing money to the eurozone bailout fund until the situation in Greece has been resolved
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  • Chinese President Hu Jintao also played down the chance of allowing the value of the yuan to rise, contradicting more optimistic remarks by the US
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  • India and Canada expressed their opposition to the idea of a tax on financial transactions, something strongly backed by eurozone governments
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  • the G20 agreed to look at the credit default swaps markets, which has been blamed by some European leaders for exacerbating the eurozone debt crisis
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Euro exit
A key part of the rescue package to be presented to the G20 was a plan to encourage wealthy emerging economies to contribute to expanding the European Financial Stability Fund (EFSF). Eurozone leaders had wanted to present the G20 with a clear action plan, but Greece has thrown this into disarray.
However, China made clear on Thursday that it would not commit to the EFSF until there was more clarity on the situation in Greece.
"Beijing wants to be certain that the mechanisms work," Li Daokui of the Chinese central bank's monetary policy committee told France's Le Figaro newspaper.
Asian exporters
Agreement was however reached among G20 leaders to increase the resources of the International Monetary Fund (IMF), according to a draft of the summit communique seen by the Reuters news agency.
However there are no details as to how much more money would be given to the IMF.
The IMF has played a key role in the eurozone crisis, providing additional money to Greece, Portugal and the Irish Republic alongside the bailout loans from other eurozone and EU governments.
French President Nicolas Sarkozy also said that countries running large trade surpluses - which include China and Japan - were willing to do more to help boost global growth.
The draft communique referred to actions by these countries to boost their spending.
However, it left open whether the big Asian exporters would allow their currencies to strengthen - something that would hurt their trade competitiveness.
'Historic conquest'
Eurozone governments struck a deal with Greece last week for a debt write-down and to bolster Europe's bailout fund and support the banking sector.Eurozone governments struck a deal with Greece last week for a debt write-down and to bolster Europe's bailout fund and support the banking sector.
But it is feared that the package may yet unravel.But it is feared that the package may yet unravel.
Greece's decision to hold a referendum on the deal caused political upheaval in Athens and stunned the financial markets. The French and German leaders, and Mr Papandreou himself, openly talked for the first time of the possibility of Greece leaving the euro if it is unable to ratify the bailout package.
Mr Papandreou and other eurozone leaders have tied the vote to whether Greece remains part of the euro bloc.
On Thursday, German Chancellor Angela Merkel said that the stability of the eurozone was more important than Greece's continued membership of it.On Thursday, German Chancellor Angela Merkel said that the stability of the eurozone was more important than Greece's continued membership of it.
But Greek finance chief Evangelos Venizelos led a revolt against the referendum, saying the vote must not be about Greece's future in the eurozone.
Eurozone leaders made clear that the next 8bn-euro tranche of bailout money would not be released to Greece until after any referendum had been held.Eurozone leaders made clear that the next 8bn-euro tranche of bailout money would not be released to Greece until after any referendum had been held.
On Thursday, Mr Venizelos said the government still had enough cash to get by without the bailout loan until 15 December. On Thursday, the Greek finance minister, Evangelos Venizelos - who led an internal government revolt against Mr Papandreou's referendum plan - said the government still had enough cash to get by without the bailout loan until 15 December.
Pressure on Italy Pressure on Italy
But there was continuing unease on the bond markets, with Italy and Spain forced to pay higher interest rates in order to borrow billions of euros. There was continuing unease on the bond markets, with Italy and Spain forced to pay higher interest rates in order to borrow billions of euros.
Many economists fear that if Greece exits the euro, a possibility recognised by European leaders for the first time, it could lead to financial contagion, as investors and ordinary bank depositors in other eurozone countries may fear that their own government will follow suit. Many economists fear that if Greece does exit the euro, it could lead to financial contagion, as investors and ordinary bank depositors in other eurozone countries may fear that their own government will follow suit.
Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule. Glossary in full
The biggest fears surround Italy, whose economy and debts dwarf those of Greece.The biggest fears surround Italy, whose economy and debts dwarf those of Greece.
The country is finding it increasingly difficult to borrow money in the international financial markets.
Italy's one-year cost of borrowing has risen to 5.1%, its highest since joining the euro, and far above the mere 0.3% interest rate that Germany must pay.Italy's one-year cost of borrowing has risen to 5.1%, its highest since joining the euro, and far above the mere 0.3% interest rate that Germany must pay.
The country's cost of borrowing has continued to rise despite interventions by the European central bank to buy up Italian debts.The country's cost of borrowing has continued to rise despite interventions by the European central bank to buy up Italian debts.
Just like Athens, Rome is under pressure from European counterparts to implement further economic reforms and austerity. But also as in Greece, this is undermining the political cohesion of the government.Just like Athens, Rome is under pressure from European counterparts to implement further economic reforms and austerity. But also as in Greece, this is undermining the political cohesion of the government.
Six Italian government MPs wrote an open letter on Thursday calling on Mr Berlusconi to make way for a transitional government.Six Italian government MPs wrote an open letter on Thursday calling on Mr Berlusconi to make way for a transitional government.
The draft communique contained a pledge by the Italian government to cut its debts and its annual borrowing rate.
The Italian cabinet agreed a limited package of budget reforms at an emergency meeting on Wednesday evening.The Italian cabinet agreed a limited package of budget reforms at an emergency meeting on Wednesday evening.
But they failed to agree to issue a decree implementing the changes, meaning that they must now go to a confidence vote in parliament - one that Mr Berlusconi may be at risk of losing.But they failed to agree to issue a decree implementing the changes, meaning that they must now go to a confidence vote in parliament - one that Mr Berlusconi may be at risk of losing.
Asian exporters
Agreement was reached among G20 leaders to increase the resources of the IMF, although there are no details as to how much more money governments would give it.
Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule. Glossary in full
A White House spokesman said that the US would not be providing additional funds.
The IMF has played a key role in the eurozone crisis, providing additional money to Greece, Portugal and the Irish Republic alongside the bailout loans from other eurozone and EU governments.
French President Nicolas Sarkozy also said that countries running large trade surpluses - which include China and Japan - were willing to do more to help boost global growth.
The draft communique referred to actions by these countries to boost their spending.
However, it left open whether the big Asian exporters would allow their currencies to strengthen - something that would hurt their trade competitiveness.