WASHINGTON — Leaders of the world’s biggest economies are facing pressure to take decisive action to quell the Eurozone crisis at a summit meeting starting Monday, even as they tamp down expectations and brace for Greece to cause more turmoil.
Amid widespread anxiety over the Greek parliamentary vote Sunday, the Group of 20 leaders, representing nations that account for nearly 90% of the world economy, will gather for a two-day summit in Los Cabos, Mexico.
Expectations are about as low as ever for aG-20 summit. What can this self-appointed steering committee for the global economy do?
“Nothing! The G-20 cannot take any real decisions” on the Eurozone problem, said Mario Baldassarri, chairman of Italy’s Senate Finance Committee, in a telephone interview. “They cannot take a decision that has to be made in Europe.”
Even the agenda looks uncertain. Everybody is waiting to see what happens the day before in Greece, a country that makes up less than 0.5% of the global economy. Greeks will cast ballots for what is widely seen as a referendum on whether their debt-stricken country remains in the Eurozone or leaves the 17-nation, single-currency union.
The results of Sunday’s vote will provide a hint of the path ahead, but it may be days before a new government is formed, leaving critical questions unanswered for the G-20 summit leaders. Will Greece testGermany’sresolve and try to renegotiate the terms of its bailout? Will the dangerously high borrowing costs for Spain and Italy ease? Will there be more bank runs?
“The situation will be one of absolute acute uncertainty,” said Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics.
Experts worry about the consequences of a possible Greek exit from the Eurozone at a time when the global outlook has been dimmed by the slowdowns in China, India and Brazil as well as the anemic recovery in the United States.
Europe’s troubles are weighing on American confidence and job growth, jeopardizing the U.S. recovery and President Obama’s reelection chances. Obama is likely to keep up the pressure on European leaders, especially on German Chancellor Angela Merkel, to promote growth.
But Merkel has shown little inclination toward making the kind of pivot to stimulus from belt-tightening that Obama and other countries are seeking. On Thursday, she again ruled out the idea of creating euro bonds to share the Eurozone countries’ debts, saying, “Germany’s resources are not unlimited.”
Britain announced plans to flood its banking system with funds in an attempt to shield its economy from shocks. Global investors, meanwhile, are hoping for a coordinated response from central banks around the world, including the Federal Reserve, as they did in the darkest days of the 2008 financial crisis.
Others are looking for more substantive progress from European Union leaders when they hold their next summit June 28 in Brussels. Kirkegaard expects officials to lay out plans for a banking union and other moves to create greater fiscal and political integration, steps that could boost confidence in the Eurozone’s future.
After last year’s disappointing G-20 summit in France, where leaders couldn’t secure commitments for funds to contain the Eurozone debt problem, many have questioned the usefulness of the assembly.
“If at the end of the G-20, you have just words about renewed commitments, I think it’s going to be difficult to recover any kind of credibility,” said Gordon Smith, a former Canadian deputy Cabinet minister and government advisor on the Group of 8 and other multinational forums. Smith said the G-20’s struggles stemmed partly from its structure.
“It’s too big, there are too many people in the room,” he said. “Leaders are now reading statements prepared by officials. They wander out of the room and come back.”
Treasury Secretary Timothy F. Geithner, who is traveling to Los Cabos with Obama, appeared more hopeful, saying that Eurozone leaders were looking at the crisis with a greater sense of urgency.
Geithner said the latest spasm of trouble in Europe — triggered by French and Greek citizens, among others, balking at austerity measures — was the “fourth major escalation” of the crisis.
“This is different from the way it’s felt before, in the sense that they’re not minimizing the risks,” he said this week in a public discussion at the Council on Foreign Relations.
Geithner suggested that European leaders at the G-20 were likely to clarify their plans in three major areas: a banking union in Europe, a financial backstop to curb borrowing costs for Italy and Spain, and “modest” steps to stimulate economic growth on the continent.
Still, it’s not moving fast enough for the Obama administration, and it’s unclear how much help Obama will get from other G-20 heads to prod Germany along.
No one expects Merkel or anybody else to bend under G-20 peer pressure.
“The fact is that Angela Merkel is more concerned about the view of German voters than any other factor,” said Richard Gowan, a senior fellow at the European Council on Foreign Relations.
Given those political realities and the individual budget constraints facing leaders such as Obama, Gowan said, the Los Cabos meeting might be better evaluated under a more limited standard.
“I think the G-20 is a useful body; it simply wasn’t’ constructed to resolve the problems of the euro crisis,” he said. “This will be a successful summit if many non-European powers emerge expressing confidence in the European Union’s ability in making long-term reforms.”
Times staff writer David Pierson in Beijing contributed to this report.