G20 powers pledge to boost growth
World economic powers will attempt to kickstart the global economy on Friday by boosting funds to fight the debt crisis and encouraging consumers to spend their way out of a threatened recession.
The shadow of debt-laden Greece still hung heavily over the second and final day of the Group of 20 summit in the French resort of Cannes, as Prime Minister George Papandreou faced a late-night vote of confidence in Athens.
Meanwhile, the focus of the crisis has switched to Italy, which saw its own borrowing costs soar this week when markets took fright at the Greek crisis.
Senior European officials in Cannes told AFP the Italian economy would be put under tight supervision by the European Commission and the IMF to reassure investors that Prime Minister Silvio Berlusconi seriouus about reform.
Pressure on Greece was still mounting, with French Minister for European Affairs Jean Leonetti warning Greece could not only be thrown out of the eurozone but also out of the European Union unless it ratifies an EU debt rescue accord.
"Not to accept the deal is to leave the euro," said Leonetti. "For the Greeks not to accept the deal is to leave Europe."
Papandreou triggered a renewed bout of market turmoil this week when he said Athens would put a rescue package agreed on October 27 to a referendum. He now appears to have abandoned that threat, but his government hangs by a thread.
Sarkozy and his German counterpart Chancellor Angela Merkel warned Greece in Cannes it would not get the International Monetary Fund and EU's next planned eight-billion euro ($11 billion) aid installment unless he backded down.
Without the EU-IMF funds, Greece would run out of money within weeks.
The roller-coaster political situation and debt crisis in Greece have relit market pressure on the Italian budget.
Italy's government adopted two austerity packages during the summer, but markets have remained sceptical that the measures will eliminate the deficit and boost growth.
At the G20 summit on Thursday, Berlusconi vowed to stick to Italy's target of balancing the budget by 2013 and said that new austerity measures would be fully enacted by the end of the month.
China warned on Thursday that it feared the eurozone crisis would persist and spread, and the world's biggest economies agreed to attempt to ringfence the crisis by bolstering the International Monetary Fund's resources.
"There is still a maturing period" before the crisis can be brought under control, said Chinese Commerce Minister Chen Deming.
"So my feeling is that the future impact of this crisis for the world and for Chinese trade will expand," he added.
Chen said China is confident that "Europe can control this crisis and eliminate it gradually.
"But at the same time, we believe that this will be a long process. There will be an impact on the world economy," he added.
The world's top exporters -- led by China and Germany -- are expected to pledge to boost their domestic demand in order to give a shot in the arm to the global economy, faced by the threat of renewed recession.
"Australia, Brazil, Canada, China, Germany, Korea and Indonesia, where public finances remain relatively strong ... agree to take discretionary measures to support domestic demand," said a draft of the final statement.
The G20 will also agree to hike IMF resources to restore confidence and reduce the risk of contagion from the European crisis.
Countries will be allowed to make voluntary contributions to boost the war chest of the IMF, the world's lender of last resort, said sources close to the negotiations at the G20 meeting in Cannes.
According to the draft, the G20 will pledge exchange rate flexibility, a bitter issue as the United States and Brazil in particular accuse China of keeping its exchange rate artificially low thus skewing global trade.
© 2011 AFP