LOS CABOS, Mexico // The leaders of the world's largest economies will portray themselves as united behind efforts to boost growth and job creation to repair a global economy roiled by fears over the European financial crisis, according to a draft of the statement to be released yesterday at the end of the Group of 20 annual meeting.
It's far from certain, however, that the reassuring words will sooth markets whose harsh judgment of the official response to the crisis appears to be pushing Europe closer to catastrophe by the day. World stock markets remained mixed and nervous yesterday. But a consumer price inflation drop in Britain reported yesterday and word that Greece will be allowed to renegotiate its debt gave some hope for economic stimulus.
On Monday, less than 12 hours after a Greek election quelled worries that the country could make a devastating exit from the Euro, fears about Spain drove that massive economy's borrowing costs dangerously close to the level where it would need a bailout.
The statement by the G20 leaders includes language that appears aimed at easing the Spanish crisis. It seems to reassures investors that Spain's treasury won't end up eating the costs of the up to €100 billion (Dh464bn) rescue of Spain's banks announced this month. Fears that the responsibility of paying back the bailout would fall on its government helped drive Spain's borrowing costs above the dangerously high seven per cent level.
"Euro area members of the G20 will take all necessary policy measures to safeguard the integrity and stability of the area ... and break the feedback loop between sovereigns and banks," the statement says.
It also places the G20 on the side of those who have been arguing for a focus on job creation, including through government spending, instead of the budget cutbacks and austerity pushed most notably by German Chancellor Angela Merkel.
And it singles out China and Saudi Arabia for commitments to global economic well-being, lauding a Saudi pledge to keep oil prices from going too high by amping up production from its massive reserves. It praises China for a promise to move away from policies that keep its currency artificially low, giving Chinese exports a price advantage on world markets.
Germany feels that it has been unfairly burdened by its large contributions to international bailouts of economically weaker European countries that overspent for years and, in exchange, it has been insisting on steep cutbacks from aid recipients such as Greece.
Those cutbacks have led to dramatic economic hardship for voters in Greece and other countries. A growing number of European countries have been advocating spending and growth, not austerity, and the G20 statement appears to place the group of the world's largest economies into that camp.