Leaders of the world’s 20 most powerful economies have agreed to boost the financial firepower of the International Monetary Fund (IMF), but failed to agree on how, with the specter of Greek and other sovereign debt crises in the eurozone looming.
While the G20 leaders struggled to reach concrete resolutions at their two-day summit in Cannes, France, European leaders said the decision to boost the international bank’s resources -- and the lines of credit for the continent -- was a significant step.
"We took a commitment to reinforce the means of the IMF if the need is felt. And we put in place the conditions to achieve this objective. The IMF must play its role of a firewall against systemic risks," French President Nicolas Sarkozy said.
He said the G20 finance ministers would be tasked with working out the details of boosting the bank’s capacity at their meeting in February 2012.
G20 officials said the IMF increase would come mostly from large emerging countries such as China, and could be in the range of $300-350 billion.
The November 4 summit was held under the shadow of dramatic events in debt-ridden Greece, where Prime Minister George Papandreou is facing demands that he resign.
Papandreou's government early on November 5 narrowly won a vote of confidence in parliament, receiving153 votes of support in the 300-seat legislature.
The vote was held after Papandreou, in an address to parliament, called for the formation of a new coalition government to approve the 130 billion euro international bailout deal that Greece urgently needs to avoid bankruptcy.
Papandreou said he planned to go to Greece's president to discuss formation of a broader-based government.
In an indication he could step down as prime minister, Papandreou also said he is willing to discuss who could head a new administration.
European Union leaders and world markets had reacted negatively after Papandreou earlier this week proposed that Greece hold a referendum on the bailout agreement, which contains unpopular austerity measures.
The government has abandoned its plans to stage a referendum.
EU leaders have warned Greece that if it rejects the bailout deal, the country would have to leave the eurozone, and possibly even the European Union.
Italy and Spain
Attention has also been focused on Italy and Spain, which are looking to avoid a Greek-style meltdown.
EU Commission President Jose Manuel Barroso said on November 4 that Rome had asked for international monitoring of its implementation of economic reforms -- a move aimed at boosting investor confidence.
"Italy has decided on its own and on its own initiative to ask the IMF to monitor implementation of Italy's commitments. I see this as evidence of how important Italy's reform process is for the country and for the eurozone as a whole," Barroso said.
Doubts have grown over whether Italian Prime Minister Silvio Berlusconi has the political strength to implement promised economic reforms meant to revive the country's economy and bring down its massive debt.
The Italian leader said his country did not need any loans from the EU or the IMF.
While European woes dominated the summit, G20 leaders also sought to tackle other issues.
Sarkozy said that China had agreed to take measures aimed at reducing its exchange reserves.
"The countries that have important external surpluses are pledging to increase domestic demand and to accelerate the flexibility of their exchange regime in order to reduce in the middle term the accumulation of exchange reserves," Sarkozy said. "You see very clearly the great country that has made these pledges [China], and it is excellent news."
China Decision Praised
U.S. President Barack Obama hailed Beijing’s decision, saying, "This is something we've been calling for for some time and it will be a critical step in boosting growth."
Obama, who is facing his own country’s debt dilemma, said the decision was one of a number reached at the summit that would put world economic recovery “on a firmer footing.”
"Put simply, the world faces challenges that put our economic recovery at risk. So the central question coming into Cannes was this: Could the world's largest economies confront this challenge [directly]. Understanding that these problems will not be solved overnight, could we make progress?" Obama said.
"After two days of very substantive discussions, I can say that we've come together and made important progress to put our economic recoveries on a firmer footing."
French President Sarkozy also warned that tax havens will be shunned by the international community, naming 11 countries he said fail to meet transparency standards.
On a proposed global financial transactions tax, Sarkozy said France would continue to campaign in favor of the measure, which has run into opposition from the United States, Canada, Russia, Australia, and China.
G20 leaders also endorsed a list of 29 banks that are considered "too big to fail" and which could be forced to obtain more capital to shield themselves from bankruptcy.
with agency reports