G20 powers secure Italy deal but fears remain

G20 finance ministers gather for a group photo
at the summit in Cannes
© AFP Lionel Bonaventure

CANNES, France (AFP) – The leaders of the world’s economic powers forced Europe on Friday to take measures to stop Italy following Greece into the abyss of debt and agreed to boost the IMF’s war chest.

Amid pressure from the United States and emerging nations at the G20 summit in the French resort of Cannes, the bloc said Italy had accepted a humiliating deal to put its economy under international surveillance.

They also said they would find extra cash for the International Monetary Fund to help tackle the European debt crisis, although they failed to agree a figure for a new eurozone “trustfund” held by the world’s top lender.

But there was no let-up in pressure on debt-laden Greece, whose ongoing political and economic crisis still hung heavily over Cannes’ rain-lashed seafront summit venue, as an example of the threat facing Italy.

After intense pressure on Italian Prime Minister Silvio Berlusconi, European Commission chief Manuel Barroso and German Chancellor Angela Merkel said Italy had agreed to surveillance on its budgetary reforms.

“Italy has decided on its own to ask the IMF to monitor the implementation,” Barroso told reporters.

“I think this is evidence of how important Italy’s response is for the country and for the eurozone as a whole.”

Merkel said Italy had agreed to quarterly reports by the commission.

Italy had earlier bridled at the claim, insisting its measures were being monitored by the commission with Rome seeking only “advice” from the IMF.

In Athens, Prime Minister George Papandreou, who was summoned to Cannes for a dressing down by host President Nicolas Sarkozy and Germany’s Chancellor Angela Merkel on Wednesday, faces a vote of confidence on Friday.

Whatever the result, his eurozone partners have made it clear that either he or his successor will have to push through a bail-out deal tied to tight fiscal controls decided last week in Europe but now called into question.

“Not to accept the deal is to leave the euro,” said France’s Europe Minister Jean Leonetti, taking his cue from Sarkozy and Merkel’s uncompromising stance.

“For the Greeks not to accept the deal is to leave Europe.”

Protesters hold anti-corporations and G-20
placards at a rally by healthcare workers and union
members in Washington, DC
© AFP Mandel Ngan

The leaders of the eurozone’s biggest economies had warned Greece it would not get the IMF and EU’s next planned eight-billion euro ($11 billion) aid installment unless the deal went through.

Without the EU-IMF funds, Greece would run out of money within weeks, and the roller-coaster political situation and debt crisis in Athens have in turn boosted market pressure on the Italian budget.

Italy’s government adopted two austerity packages during the summer, but markets have remained sceptical that the measures will eliminate the deficit and boost growth.

At the G20 summit on Thursday, Berlusconi vowed to stick to Italy’s target of balancing the budget by 2013 and said that new austerity measures would be fully enacted by the end of the month.

China warned that it feared the eurozone crisis would persist and spread, and the world’s biggest economies agreed to attempt to ringfence the crisis by bolstering the IMF’s resources.

“My feeling is that the future impact of this crisis for the world and for Chinese trade will expand,” said Chinese Commerce Minister Chen Deming.

EU President Herman Van Rompuy said the G20 agreed to hike IMF resources to restore confidence and reduce the risk of contagion from the European crisis.

Officials said countries will be allowed to make voluntary contributions to boost their funding for the IMF.

The world’s top exporters — led by China and Germany — are also expected to pledge to boost their domestic demand in order to give a shot in the arm to the global economy, faced by the threat of renewed recession.

“Australia, Brazil, Canada, China, Germany, Korea and Indonesia, where public finances remain relatively strong … agree to take discretionary measures to support domestic demand,” said a draft of the final statement.

According to the draft, the G20 will pledge exchange rate flexibility, a bitter issue as the United States and Brazil in particular accuse China of keeping its exchange rate artificially low thus skewing global trade.