A
source at the French finance ministry — which is battling to flesh out
the bones of a crisis resolution plan with Germany in time for an Oct.
23 European Union summit — said the euro zone was more pressing than
anything else on the two-day agenda.
"This
meeting takes place in a context where the absolute priority for the
success of the G20 is to find the elements for the stability of the euro
zone," the source said.
With
impatience growing over the crisis, and its implications for the rest
of the world, finance chiefs from outside the bloc are expected to speak
frankly.
"This
meeting is an important staging point before (a G20 summit in) Cannes
and a valuable opportunity to put pressure on the euro zone," said a
non-euro zone G20 delegate.
Canadian
Finance Minister Jim Flaherty set the tone late on Thursday, telling
reporters before leaving Ottawa that euro zone actions were short of
what is needed.
Unlike
in 2009 when the G20 launched a coordinated stimulus to pull the world
out of economic crisis, the forum is at risk of division as the rest of
the world chafes at Europe's dithering over a debt crisis that started
18 months ago in Greece, and as Washington and Beijing spar over the
yuan.
Paris and Berlin are taking time to agree on how to recapitalise banks and
while Germany favours a second round of losses for Greek bondholders,
Paris is reticent. The two euro heavyweights also differ on the idea of
joint bond issuance for the euro zone, with Germany loath to see its
debt costs rise.
The
Franco-German crisis plan is likely to ask banks to accept big losses
on their Greek debt and should lay out a system for recapitalising
troubled banks, whose shares have been pounded by fears about Greek
exposure.
At its core will be an agreement on how to increase the firepower of the EFSF rescue fund,
and it should also set out a timeframe for ramping up economic
coordination, with closer governance and explicit national laws on
balancing budgets.
The
G20 may refer to the euro crisis in its communique and in closing news
conferences on Saturday evening, but little else of substance is likely
to be inked in.
China May Offer Growth, No Yuan Shift
This week's talks may give the green light to regulators for new rules on banks deemed 'too big to fail', including capital surcharges, due to be officially approved in Cannes.
This week's talks may give the green light to regulators for new rules on banks deemed 'too big to fail', including capital surcharges, due to be officially approved in Cannes.
Yet
any concrete progress on bigger goals such as setting parameters to
measure global imbalances and reining in commodity market volatility and
speculative capital flows is unlikely to come before a Nov. 3-4 summit
in Cannes, where France passes the G20 baton to Mexico.
The
finance ministry source said that for Cannes France hoped to have two
or three measures agreed for countries showing imbalances: consolidation
measures for those with high deficits and stimulus measures for those
with surpluses.
"We
are going to try to make some progress and obtain, perhaps not tomorrow
or Saturday but by Cannes, a list of measures country by country which
corresponds to what is needed to relaunch global economic activity," he
said.
"These must be measures which will have an impact on the real economy."
A
separate G20 source said after preparatory talks late on Thursday that
China would commit in Paris to boost its consumption through a five-year
plan, via households and companies as well as infrastructure, as the
G20 seeks tough fiscal commitments from the euro zone and the United
States.
The G20 countries make up 85 percent of global output.
An
April G20 meeting placed seven large economies under review -- the
debt-burdened United States, export-rich China, France, Britain,
Germany, Japan and India. Officials have said privately the aim was to
get Beijing to discuss the yuan, and China's cooperation is essential to
the success of the process.
France
has dangled the prospect of the yuan entering the basket of currencies
making up the IMF's Special Drawing Right (SDR) in a bid to divert the
debate away from its value and onto the criteria of free "usability"
required for this.
The
euro zone crisis has derailed Sarkozy's hopes of using his G20
presidency to launch a fundamental rethink of the global financial
system and its reliance on the U.S. dollar.
China
and the United States sparred this week over a U.S. Senate bill to
press Beijing to raise the yuan's value, and the issue is likely to
create a sideshow at the G20 talks, even if the euro zone crisis pushes
it off centre stage.
"China
won't play a big role at the meeting," said He Fan, deputy head of the
Institute of World Economics & Politics at the Chinese Academy of
Social Sciences government think tank.
"China
cannot do much over the European debt crisis. China will not buy
European bonds on a large scale. There are not many choices out there.
Italy is the biggest bond issuer in Europe, but I doubt China will buy
its bonds. The question for China is how to safeguard its investment in
Europe," He said.
He added that China could participate in a multilateral framework for rescuing European banks, such as via the IMF.
A
G20 official told Reuters on his way out of talks on Thursday that
China and Japan were both open to lending more funds to the IMF to help
with the euro zone crisis.
Two
other sources said several BRICS countries, notably India, China and
Brazil, favoured bolstering the IMF's capital as a way to contribute to a
rescue for Greece, but without altering voting rights in the lender.
Brazilian Finance Minister Guido Mantega also said this week that extra IMF support may be debated.
Copyright 2011 Thomson Reuters.
