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Wednesday, June 20, 2012
World leaders tried to convince financial markets yesterday that Europe can move fast enough toward a major overhaul of its banking systems that could help fix its debt crisis and restore confidence in a faltering global recovery.
At a Group of 20 leaders summit, Europe signalled it was considering eurozone-wide integration of its banking sector, a major reform sought by the United States and other nations to break the cycle of highly indebted countries rescuing failing banks, which only pushes governments ever deeper into debt.
But the news that the G20 was readying a firm statement for restoring global growth and jobs, along with Europe’s pledge of action, brought little relief to investors.
Risks grew that Spain, the eurozone’s fourth-largest economy, would need a full-blown international bailout as its short-term borrowing costs jumped about two percentage points and longer-term debt yields hovered above 7%, heightening the danger it would be locked out of credit markets.
French President François Hollande said he and German chancellor Angela Merkel, central players in a crisis that has run for more than two years, were both aware that the eurozone was responsible for providing the solutions.
"Mrs Merkel and I know that Europe must have its own response," he said on the sidelines of the G20. "It must not be given to us from the outside."
"The IMF is not there to backstop the eurozone even if it has done so for some countries, as we saw in Greece," he added.
The dangers that Europe’s escalating debt crisis would drive the global economy back into recession for the second time in less that four years dominated Monday’s sessions among the G20 leaders of industrialised and developing nations, which represent over 80% of world output.
Under pressure from financial markets and anxious world leaders, Europe agreed on Monday to move towards a more integrated banking system.
Among commitments in a draft G20 communique obtained by Reuters was a pledge to consider concrete steps towards a "more integrated financial architecture" in Europe that would include common banking supervision and guarantees for bank depositors. A G20 official said there was no guidance from European leaders or officials about any time frame for such a plan.
Diplomats said that US President Barack Obama carefully spelled out to fellow leaders the interlinked nature of the global economy with each region heavily dependent on demand from the EU, the world’s largest economic bloc, for exports.
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