The leaders of world biggest economic powers turned their attention on Italy on Friday, pressing for measures to prevent Rome from following Greece into the abyss of debt.
As the leaders put the finishing touches to a G20 summit statement designed to kickstart global growth and rebalance trade, senior European Union officials said Italy’s economy would be put under IMF surveillance.
Italy bridled at the claim, insisting its measures were being monitored by the European Commission with only “advice” from the world’s top lender, but Prime Minister Silvio Berlusconi’s reforms were clearly under scrutiny.
And 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
Prime Minister George Papandreou, who was summoned to the French resort for a dressing down by host President Nicolas Sarkozy and Germany’s Chancellor Angela Merkel on Wednesday, faces a vote of confidence in Athens 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.”
The leaders of the eurozone’s biggest economies had warned Greece it would not get the International Monetary Fund 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 Athen 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 International Monetary Fund’s resources.
“There is still a maturing period” before the crisis can be brought under control, said Chinese Commerce Minister Chen Deming. “So my feeling is that the future impact of this crisis for the world and for Chinese trade will expand.” “There will be an impact on the world economy,” he warned.
The world’s top exporters — led by China and Germany — are 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.
The G20 will also agree to hike IMF resources to restore confidence and reduce the risk of contagion from the European crisis.
Countries will be allowed to make voluntary contributions to boost the war chest of the IMF, the world’s lender of last resort, said sources close to the negotiations at the G20 meeting in Cannes.
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.