PARIS (Reuters) - There was no repeat of the united stand which pulled the world back from the brink in 2009 at Saturday’s meeting of G20 finance chiefs. There was a mutual sense of fear that if Europe fails to deliver, the global economy is in deep trouble.
Pressure was heaped on the euro zone finally to get on top of its debt crisis at a European leaders summit in eight days’ time. And there was more than just rhetoric to show just how worried policymakers are if the October 23 gathering falls short.
Emerging economies, who have been buffeted in the wake of Europe’s predicament, suggested pouring more resources into the International Monetary Fund to protect those in trouble.
The United States and others rebuffed the idea but if those emerging powers that have provided the strongest growth since the world financial crisis struck are under threat, delegates said every country would feel the impact.
“The emerging countries are really worried about euro zone debt crisis,” one G20 delegate told Reuters. “The EU summit is seen like a turning point”.
Nor was it just off the record mutterings that reflected the sense that a make-or-break moment has arrived.
“We heard loud and clear that the emerging markets in particular were very concerned about the risk of contagion from advanced economies,” IMF chief Christine Lagarde told a news conference, promising to help “non-consenting victims of the economic crisis”.
Even normally reserved Japanese officials spoke out.
“Europe needs to get its act together because unless the crisis is put to an end, it will start to affect emerging economies which have enjoyed strong growth,” Japanese Finance Minister Jun Azumi said.
His Canadian counterpart, Jim Flaherty, said the risk of a global recession would be dramatically higher if next Sunday’s European summit failed to deliver.
Despite the pall of concern, there look likes being no repeat of 2009 when all the world’s major powers acted together to avert financial meltdown. Washington and Beijing continue to spar over China’s yuan currency and much of France’s ambitious G20 agenda to reset the global economy has fallen by the wayside.
Putting nerves on edge has been Europe’s piecemeal approach to its two-year-old debt crisis which began with Greece but now risks engulfing much larger economies; what British Prime Minister David Cameron recently called “a bit too little, a bit too late” approach.
But hope has been fostered by the imposition of a strict deadline to act for the first time — German Chancellor Angela Merkel and French President Nicolas Sarkozy have promised a comprehensive plan by the end of the month.
“Everybody has a lot of expectations for this summit, that’s pretty clear,” an EU official at the G20 summit told Reuters.
Elements of the plan appear to be coming together.
European banks will be recapitalized and sources say ideas to ramp up the euro zone’s rescue fund are now centering on making the fund more like an insurer so that it covers, for example, the first 20 percent of losses a bank could suffer on government bonds, thereby multiplying its firepower fivefold.
More problematic could be renegotiating a second Greek bailout agreed in July which now looks insufficient and will require bank creditors to take deeper losses, something they are reluctant to do.
U.S. Treasury Secretary Timothy Geithner tried to strike an optimistic tone but even he did not sound sure.
“Based on my extensive discussions with them over the last six weeks or so and looking at what they’re saying in public too, I am encouraged by the direction and by the speed at which they’re moving now and by the shape of the strategy,” he said.
“But as you know it’s all in the details and it’s very hard to judge what in fact will happen until you see its basic shape.”
What is certain, is that whatever Europe’s leaders come up with next weekend, markets will test its robustness.
One emerging markets source at the Paris meeting said there was not enough detail yet to judge the euro zone’s plans.
“We have to wait and see whether this is credible and good enough for the markets,” the source said.
French Finance Minister Francois Baroin promised the October 23 summit would be decisive. It will be deeds not words that dictate and time is short.
Additional reporting by Daniel Flynn, Leika Kihara, writing by Mike Peacock