The Globeand Mail.: More than at any time since the depths of the financial crisis, the world’s leaders need to pull together today, end their squabbling and divisiveness, and come up with a concrete plan to get the fragile recovery back on track.
It’s not enough to say they’re united and pledge to do what’s necessary, as a draft of the G20 statement would suggest. The leaders meeting in Mexico must show the fortitude and unity they showed after the collapse of Lehman Bros. if they are truly going to ease the fears that threaten the world at a such a crucial period.
“If yesterday’s draft communiqué from the summit of G20 leaders in Mexico was intended to instill confidence it failed to do so, as the markets clearly weren’t listening,” said senior analyst Michael Hewson of CMC Markets.
“The communiqué stated that Europe would strive to take ‘all necessary measures’ to hold the euro zone together and break the ‘feedback loop’ between sovereign states and banks. Given yesterday’s blowout in yields pressure is growing once more on the [European Central Bank] to act and force yields back down.”
At least in Europe, markets have lost faith after more than two years of a debt crisis that continues to spiral out of control. Some economies are collapsing, and unemployment is at unbearable levels. The number of bailouts is mounting, and the euro zone is at the brink.
Thus, it was unwise of European Commission chief José Manuel Barroso to slam his colleagues, such as Canada’s Prime Minister Stephen Harper, for pressing Europe to solve its problems. One of the issues, of course, is Canada’s decision to not pump extra funds into the International Monetary Fund, money that would be used to prop up Europe’s ailing nations.
It’s true that Mr. Harper and his finance minister, Jim Flaherty, have been aggressive in demanding Europe fix its ills, but the protests, strikes and election results show that Europeans feel the same way. Mr. Barroso should have held his fire, and tried to work behind the scenes. Instead, he fired back, The Globe and Mail’s Bill Curry reports from Los Cabos, where the G20 is meeting today.
“Frankly, we are not coming here to receive lessons in terms of democracy and in terms of how to run an economy because the European Union has a model that we may be very proud of,” Mr. Barroso said.
Whether or not he should be proud of that model is beside the point. These leaders have an opportunity to show the world today that they can, indeed, pull together when needed. And Mr. Barroso, in particular, should understand just how much of a pall Europe has cast on other countries.
“Mr. Barroso’s comments reflect how much the euro zone crisis is poisoning relations between the major powers, but he should bear in mind that we have all been watching this slow-motion car crash unfold now for almost three years, and we are still no closer to a resolution,” said sales trader Yusuf Heusen of IG Index in London.
Strategist Adam Cole of RBC in London questioned the draft version of the statement.
“The document contains a pledge to put in place the policy changes in Europe that will break the feedback loop between sovereigns and banks,” he said. “Reports that the communiqué will also include the detail of how this will be done, however, seem to overstate the scope of the statement. According to sources, China is to contribute $43-billion to boosting the IMF funds while Russia, India and Mexico are to boost IMF funds by $10-billion each. Pledges now total $456-billion ($430-billion in April) excluding these contributions. Other contributions may follow.”
Like Mr. Cole and Mr. Heusen, many observers wonder what will come out of the G20 but for a warm and fuzzy statement.
“The G20 summit in Mexico is bound to be filled with recommendations for less austerity,” said David Rosenberg, chief economist at Gluskin Sheff + Associates. “It is incredible that the G20 is dealing with even more acute issues now than at the last grade meeting in France last November – do these guys actually do much more than talk?”
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