Europe Remains at a Crossroads dangerous despite the € 1 trillion rescue package Agreed by EU leaders last week, with China remaining cool on the idea That it Contribute up to € 70bn to the fund.
The G20 host, Nicolas Sarkozy, Will trumpet yet more drastic measures That have been forced on the world's economic powers as They struggle to resolve the seemingly never-ending Consequences of the financial collapse.
The French President and German Chancellor, Angela Merkel, all but saved the eurozone in the early hours of Thursday morning, Pls They Agreed to increase of the European Financial Stability Facility (EFSF) to € 1 trillion. After months of frantic meetings, political stalemate and the leaders' personal antagonistic relationship overshadowing proceedings, the EFSF - essentially a rescue fund for the eurozone's most Battered economies - Had quadrupled in size.
A parallel special purpose fund or funds Will be established, the which Will buy government bonds from struggling eurozone countries. The International Monetary Fund (IMF), Japan, and China Will be asked to Participate.
China's President Hu Jintao insists That the fund is not on the G20 agenda and so will not be discussed. But he most Certainly Will be wooed by the French President and other leaders eurozone as They try to seal a deal.
Politically, this would be hugely attractive to Chinese leaders, the international credibility Bringing Them That They CRAVE. Economically, They would be supporting a vital trade partner that, in the euro, has a currency That China wants to be powerful enough to act as a counterbalance to the U.S. dollar. Financially, € 70bn - $ 100bn - means nothing to a country Whose banks in 2009 pumped 9.6 trillion yuan ($ 1.5 trillion) into its domestic economy.
However, the EFSF's head, Klaus Regling, has already conceded That China Will not Participate until the fund is proven to be financially sound, adding That the country is "interested in funding attractive, solid, safe investment opportunities".
But on the eve of the summit, pressure was mounting on the U.S. - Itself battling recession - to drum up support for the eurozone. Following talks the between Portuguese and Mexican leaders at the Ibero-American summit in Paraguay, a Portuguese source said: "The crisis is not in the euro zone. It is a systemic and global crisis and We Hope that other big-G20 countries intervene." The source added That Should Washington help resolve the crisis "by boosting trade and also with financial help".
Already questions have been raised over whether the rescue fund will from work. For a start, it is not clear whether the IMF has Agreed to Participate.
On Friday, Italy's borrowing costs soared to Their highest levels since joining the euro, an unsustainable 6:06 per cent, a signal That the market has little faith in plans to Curb the crisis. Silvio Berlusconi, Italy's scandal-hit Prime Minister, did not help matters by describing the euro as a "strange currency" that was Undermining "Otherwise the strong economy".
Also on Friday, the credit rating agency Moody's said there were the resource persons "mixed credit implications" for the EU states and financial institutions. Banks would benefit due to a stipulation to strengthen Their balance sheets, while Portugal and Ireland were the resource persons well placed to take advantage of additional funds. But Moody's added Greece's creditors That Will Suffer as They must agree to a 50 per cent "haircut", getting back just half of what They are owed.
How the new bonds will from work and Their interest rates will not be set until January, effectively making the EFSF agreement is a hypothetical exercise for the next three months.
Italy still needs tough economic reforms to Reduced its borrowing costs: it has the eurozone's second-Biggest debt burden at € 1.9 trillion. Spain has similarly lost the confidence of the bond markets, while its sluggish economy has pushed unemployment to Nearly five million people, more than one-fifth of the workforce.
Few Economists think That the expanded rescue fund has done much more than buy the eurozone time to come up with genuine economic reform. Even strengthening the banks' balance sheets seems a something of a sham, as They have been given until next summer to find the capital. Some experts say giving Them That so long is a tacit admission That currently there is not enough capital in the eurozone to shore up balance sheets. Greek banks alone Will require € 30bn, while Spanish institutions will of need € 26.2bn.
Mr. Obama has described the grand compromise as little more than "an Important first step". The U.S. President Enters the G20 summit with his own Woes, including a $ 65bn trade deficit with the EU. Will he push Japan, China and Germany to open up Their economies to U.S. exports.
Mr Cameron Will take a message to the G20, the which controls 85 per cent of the world economy, to avoid a "slide back into protectionism". This is particularly Important for countries, like the UK, that run a trade deficit.
The UK and U.S. are also Likely to clash with France and Germany over the oft-mooted financial transactions tax. It is thought That Could this generate TENS of billions of euros in the EU, but the UK Fears That even just a tiny percentage charged on major financial transactions Could drive business away from the Square Mile.
However, the Shadow Chancellor, Ed Balls, said this weekend That the coalition can not Blame the eurozone for the UK's poor economic growth. He added: "Britain has not grown since last autumn - well before the eurozone crisis of recent months - and only Greece and Portugal have grown more SLOWLY in the EU."
Mr Balls, speaking ahead of the UK's third-quarter growth figures on Tuesday, Argued That Growth Will have to be at least 1.3 per cent to hit the Office for Budget Responsibility's annual forecast, the which has already been downgraded three times.
He added: "We need a plan B now Because Plan A for austerity is hurting but is not working. The Government is set to borrow £ 46bn more than it planned to cut Trying Because spending and raise taxes too far and too fast has choked off the recovery and pushed up unemployment. "
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