G20 summit begins with scramble to salvage Greek bailout deal
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REPORTING FROM CANNES, FRANCE -- The Group of 20, leaders of the world’s major economies, converged here Wednesday amid economic and political chaos over Greece’s debt crisis, forcing a typically choreographed gathering to proceed without a script as European leaders scrambled to salvage a bailout deal months in the making.
The two-day Group of 20 summit officially starts Thursday. But German Chancellor Angela Merkel and French President Nicolas Sarkozy called for an emergency session Wednesday night with other European officials after their Greek counterpart announced the day before that he would put a European rescue plan for his indebted nation before voters in a January referendum.
It was unclear what Merkel and Sarkozy would seek from Greek Prime Minister George Papandreou, who flew to Cannes for the session. The pair spent considerable political capital to push through a comprehensive bailout plan just a week ago, but it includes some measures that likely would prove unpopular with Greek voters.
The referendum proposal was backed overnight by Papandreou’s cabinet, even as some politicians in Athens demanded the prime minister resign. They argued that the referendum would further destabilize Greece and imperil the future of the 17-nation euro currency bloc.
“There is a very serious chance the Greeks could say ‘no’ to the bailout deal,” said Howard Archer, chief European economist at IHS Global Insight in London. Economists fear that would lead to a Greek default and its expulsion from the Eurozone, something that could trigger a massive panic in world markets and send the global economy into a new recession.
“This significantly increases the risk that this could all end in tears,” Archer said.
Even before the curveball from Papandreou, President Obama, who is scheduled to arrive in Cannes on Thursday, and the 19 other leaders attending the summit were facing a conundrum they so far have been unable to solve.
Consumed by a seemingly unending series of troubles over Europe’s debt woes, the world’s leaders have barely begun to tackle the serious economic imbalances and other structural problems that are at the heart of the world’s jobs crisis.
Even more complicated, the belt-tightening policies being demanded by the stronger economies in the 17-nation Eurozone are not only encountering greater resistance from voters but may stifle growth and make the economic problems worse and more long-lasting.
Indeed, policy experts warned ahead of the Group of 20 summit that labor markets around the world were likely to start weakening again, a devastating prospect especially for young workers. Unemployment for those 16 to 24 years old in the G-20 countries has reached epidemic proportions, from nearly 20% in the U.S., Turkey and Argentina to almost 50% in Spain and South Africa.
Unless decisive actions are taken to resolve the European debt troubles and address other fundamental problems, analysts warn, more trouble lies ahead -- with new turmoil in financial markets, slow economic growth and continuing high unemployment, especially for the Western economies.
“There are political obstacles to doing what’s necessary, but not doing it will be more costly,” said Barry Eichengreen, a UC Berkeley professor and an expert on European economies.
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