* Europe to consider financial integration as first step
* Obama: Europe ready for decisive and bold action
* G20 awaits EU summit to launch euro-zone overhaul
* Italy floats debt-buying idea, France says worth exploring
By Jeff Mason and Noah Barkin
LOS CABOS, Mexico, June 19 Europe won support
from world leaders on Tuesday for an ambitious but slow-moving
overhaul of the euro zone, even as pressure built in financial
markets for quicker solutions to its debt crisis that threatens
the world economy.
Europe told a Group of 20 summit it intends to work on
concrete steps to integrate its banking sectors, a major step
long pressed by the United States and other nations to break the
cycle of debt-laden countries bailing out their troubled banks
which only pushes governments ever deeper into debt.
U.S. President Barack Obama said the sense of urgency
amongst European leaders was clear and they knew what steps were
needed to "break the fever" of an escalating debt crisis.
"None of them are going to be a silver bullet that solves
this thing entirely ... in the next week or two weeks or two
months, but each step points to the fact that Europe is moving
towards further integration rather than break-up," Obama told
reporters at the end of the two-day summit in a Pacific resort.
U.S. Treasury Secretary Timothy Geithner said a strengthened
framework for a euro-wide fiscal and banking union to underpin
the common currency would help restore Europe's economic growth
and lower painfully high borrowing costs for indebted countries.
International Monetary Fund chief Christine Lagarde hailed
the progress saying "the seeds of a pan-European recovery plan
"It doesn't matter if it takes a long time, it has got to be
done well," she said, adding that immediate measures and
longer-term ones must be pursued in parallel.
G20 leaders now await a European Union summit next week
where European officials say they will launch the long process
of deeper integration, starting with a push for banking union,
with an aim of finalizing a broad plan by December.
Canadian Prime Minister Stephen Harper, a critic of Europe's
progress to date, said it was now getting to the root of its
"What will be important, what we'll be watching for next
week and going forward will be the concerted, coordinated action
that will actually make these things happen," Harper said.
Financial markets have yet to be convinced about the chances
of agreement. Germany has resisted taking on euro-wide financial
risks if its citizens have to foot too much of the bill, while
others, such as France and Italy, want to move more quickly.
Although the danger of Greece crashing out of the euro zone
eased after weekend elections, risks are mounting that Spain,
the euro zone's fourth-largest economy, will need a full-blown
international rescue as its longer-term debt yields hover above
7 percent, a level that has forced other euro countries to seek
The tensions over the world economy and the round-the-clock
discussions contrasted with the laid-back atmosphere of Los
Cabos, a beach resort at the tip of Mexico's Baja California.
The summit declaration was drafted at a hotel next to the
adults-only, clothes-optional Desire Resort And Spa.
TIMELINE AND PATH AHEAD
G20 leaders found common ground that Europe, the world's
richest region, must intensify its immediate efforts to
stabilize indebted euro-zone countries while laying out a clear
plan for building financial, fiscal and political union as the
path to save monetary union.
"The Los Cabos G20 delivered more commitments than expected.
The Europeans upped the ante and publicly committed to
institutional upgrade for the banking system and fiscal
situation of the EU," said Yves Tiberghien, political science
professor at the University of British Columbia.
Greece, Ireland and Portugal, overwhelmed by debt, have
resorted to international bailouts and the EU last week promised
funds for Spain's banking system. But investors see these as
stop-gap measures until Europe commits to deep budgetary and
political integration, sharing risk at the European level.
This would require euro-zone nations to give up more
sovereignty and share economic costs, steps that EU leaders say
will take time among the 17 democracies that share the currency,
especially for Germany which would foot the largest bill.
ALL NECESSARY STEPS
In the G20 communique, euro area countries pledged to "take
all necessary policy measures" to safeguard monetary union.
Europe also intends "to consider concrete steps towards a more
integrated financial architecture", including common banking
supervision, bank recapitalization, winding down of failed banks
and guarantees for bank depositors, it said.
These steps would help break the link between government
debt and banking problems. Combined with fiscal discipline and
measures to support growth, they represent "important steps
toward greater fiscal and economic integration" that lead to
lower borrowing costs, the G20 communique said.
Other G20 countries also signed up to measures designed to
support a global economy that has slowed to about a 2.5 percent
pace. Those with budgetary leeway stand ready to coordinate on
fiscal stimulus measures, if economic conditions deteriorate
significantly. The United States pledged to avoid a potential
big shock to its economy in early 2013 when tax cuts are due to
expire and spending cuts take effect, the communique said.
Europe's success in Los Cabos was to explain to the G20 the
political challenge of overhauling its 17-nation monetary union.
Other G20 leaders conveyed the urgency of having a clear plan.
One EU official said that the push for banking union can
proceed most swiftly while the vision of a European fiscal union
will take longer. "It cannot be done from the morning to the
night," the official said.
No less challenging was moving around the resort town which
was teeming with Mexican military and police. Tight security
stalled traffic and meetings were delayed. Russian Finance
Minister Anton Siluanov had to make his way on foot after his
car in the presidential motorcade was blocked by security.
Italy put forward a potentially controversial proposal for
the euro zone's rescue funds to start buying debt of stricken
euro-zone countries, such as Spain and Italy, to start lowering
their financing costs, European officials said.
French President Francois Hollande said the idea was worth
exploring. Italian officials have said the plans would be
discussed at a meeting of finance ministers this week. But
Germany said no specific initiative was discussed in Los Cabos.
G20 leaders left little doubt that Europe is critical to
stabilizing the global recovery.
Obama carefully spelled out to fellow G20 leaders the risks
to growth in an interlinked globe, diplomats said. He showed how
each region is heavily dependent on demand from the EU, the
world's largest economic bloc, for their exports and investment.
"He read out the figures, how much India, China, Korea, etc,
how much they each depend on Europe and the European Union in an
integrated global economy," a G20 official said.
Development groups complained that Europe's troubles have
hijacked the G20 agenda and pushed into the background its work
on addressing poverty and food shortages.
"Political courage seems to be in short supply in Los
Cabos," said ONE, a global anti-poverty group founded by rock