Leaders warn Europe to fix titanic debt crisis

3rd November 2011, Comments 0 comments

Leaders of the world's biggest economies urged Europe to put its house in order Thursday, at a G20 summit dominated by a debt crisis which could drag down Italy and force Greece from the eurozone.

US President Barack Obama, at the opening of the two-day Group of 20 summit, said the leaders' top priority was to conquer the crisis, which has rocked markets and threatens to tip the broader world economy into recession.

"The most important aspect of our task is to resolve the financial crisis here in Europe," said Obama after meeting summit host French President Nicolas Sarkozy at the start of the two day meeting in Cannes.

Obama said the EU "has made some important steps towards a comprehensive solution," but "here the G20 will have to flesh out the details on how the plan will be fully and decisively implemented."

Russian President Dmitry Medvedev also called for "urgent" steps and a top White House aide said "overwhelming force" was needed to resolve the crisis.

Already on Wednesday, France and Germany had attempted to strong-arm Athens into accepting a planned EU bailout as the Greek government tottered on the brink of collapse.

Greek Prime Minister George Papandreou triggered a renewed bout of market turmoil this week, when he said Athens would put a rescue package hastily agreed last week to a referendum.

But as the storm clouds gathered over the summit in the rainswept French resort of Cannes, Papandreou backtracked and said he was ready to abandon the referendum plan.

G20 host Sarkozy and his German counterpart Chancellor Angela Merkel had summoned Papandreou to Cannes late Wednesday to vent their fury over his high-risk referendum gambit.

They warned Greece would not receive "one more cent" of the IMF and EU's next planned eight-billion euro ($11 billion) aid instalment unless he won the referendum scheduled for December 4.

Without these funds, senior officials in Cannes said, Greece might not be able to pay government employees after this date -- and could face a messy debt default which would force it to leave the European single currency.

The warning seemed to work and Papandreou -- back in Athens Thursday and facing a confidence cote in parliament -- said he was prepared to drop plans for the referendum which had sent world stock markets into a tailspin.

Italy's long-term borrowing costs hit 6.4 percent, which observers warned was unsustainable, and markets across Europe opened down between 1.5 and 2.5 percent amid fears over the growing threat of a Greek default.

Medvedev urged Greece on Thursday to take urgent measures that are "not exotic or populist" to resolve its debt crisis, warning: "Countries with excessive debt must urgently begin fiscal consolidation.

"Russia is part of Europe, and its problems concern us. We will participate in financial aid programs in EU countries, at least through the IMF," he said.

Obama was greeted by cheering crowds of French wellwishers as he arrived in Cannes's Palais des Festivals -- better known for hosting the town's annual film festival -- for pre-summit talks with Sarkozy.

"I'd like to pay tribute to President Obama's understanding, including on subjects like the tax on financial activities," Sarkozy said, implying Washington is moving towards Europe's plan to make markets bear the burden.

But Obama and others had a tough message for the hosts.

"In Europe, we need to avoid a chain reaction triggered by the budgetary problems in certain countries," Japanese Prime Minister Yoshihiko Noda warned.

China's President Hu Jintao dined with Sarkozy late Wednesday, after which officials said they might contribute $100 billion to Europe's bail-out fund, but only if they were convinced the investment was safe.

© 2011 AFP

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