The G-20 summit ended in disarray Friday without additional outside money to ease Europe’s debt crisis and new jitters about Italy clouding a plan to prevent Greece from defaulting.
In Athens, meanwhile, Greece’s prime minister survived a confidence vote in parliament, calming a revolt in his Socialist party with a pledge to seek an interim government that would secure a vital new European debt deal.
In the end, only vague offers to increase the firepower of the International Monetary Fund — at some later date — were all the eurozone leaders were able to take home after two days of tumultuous talks.
With their own finances already stretched from bailing out Greece, Ireland and Portugal — and the United States and other allies wrestling with their own problems — eurozone countries had been looking to the IMF to help line up more financing to prevent the debt crisis from spreading to larger economies like Italy and Spain.
Italy’s fate in particular is crucial to the eurozone, because its economy — the third-largest in the currency union — would be too expensive to bail out. The implications for the world economy are stark: The debt crisis that has rocked the 17-nation eurozone threatens to push the world economy into a second recession.
European leaders could point to one potential catastrophe averted: They stared down Greece’s prime minister and berated him into scrapping a referendum that threatened their European bailout plan. Greece’s politics are in upheaval as a result, but the shaky bailout plan appears back on track — for now.
“We want Europe to work,” French President Nicolas Sarkozy said on French TV when the summit was over. “I think today we can have confidence ... but that’s not to say our troubles are behind us.”
In the end, the Greek question completely derailed Sarkozy’s aim of using the summit to show that Europe had sorted out its debt problem once and for all — and possibly convince some of them to pitch in to the rescue effort.
In the space of days, the already shrunken list of goals set out by France to close out its year as head of the G-20 was scrapped, replaced by a nearly constant stream of shocking new developments and reversals in Europe’s long-running attempt to get control of Greece’s debt crisis.
That reality was perhaps best illustrated at the height of the summit Thursday evening, when hundreds of journalists dropped what they were doing in the basement of Cannes’ Palais des Festivals and gathered around television screens to watch a live transmission from the Greek parliament in Athens, where Prime Minister George Papandreou was speaking.
The week of unending drama in Athens horrified its European partners, spooked global markets and overshadowed the summit in Cannes. The threat of a Greek default or exit from the common euro currency has worsened the continent’s debt crisis.
When the week started, Europe had finally reached an intricate, ambitious and fragile deal to try to rescue Greece and stop the crisis from spreading any further. The G-20 summit was supposed to solidify and clarify the deal and get the world economy back on the right track.
Then Monday night, Papandreou shocked his European partners and domestic allies by announcing he would put the plan to a referendum. Markets panicked, as did many of the leaders coming to Cannes.
Sarkozy and German Chancellor Angela Merkel held a series of frenzied meetings, then summoned Papandreou on Wednesday. If you lose this referendum, you could lose the euro, they told him. And they froze a new euro8 billion loan that Greece will soon need to pay government salaries.
On Thursday, Papandreou backed down and abandoned the referendum. The U-turn left his 2-year-old government teetering.
Now Europe’s leaders may find it is impossible to take back the shocking admission by Sarkozy and Merkel that an exit by Greece from the eurozone was no longer unthinkable.
And even as U.S. President Barack Obama, Chinese President Hu Jintao and other leaders struggled to make sense of the Greek drama’s fast-shifting plot, another flashpoint emerged in Italy.
Market confidence in Italy’s ability to reduce its public debt and spur growth in its anemic economy has withered over recent weeks as the government weakened. Lawmakers have defected to the opposition and some of Prime Minister Silvio Berlusconi’s ministers have openly suggested the government’s days may be numbered.
Market fears mounted on Friday in the wake of the confusion about Greece. Italy’s benchmark 10-year bond yield jumped 0.32 of a percentage point to 6.43 percent, indicating a surge in investor worries about the country’s ability to repay its debts.
The need to reassure bond markets led Italy to agree to submit to IMF scrutiny.
The IMF said it will monitor Italy’s financial reform efforts, a humbling step for one of the world’s biggest — but also most indebted — economies.
To solve the political deadlock that threatens to bring down his government and slow down implementation of reforms, Berlusconi said he had asked the IMF to check up on the country’s progress in implementing the measures with periodic, public reports.
The most likely way the eurozone could still get additional financing is through a special account under the auspices of the IMF, into which individual countries could make payments.
Those investments in turn could then be used to boost the eurozone’s own bailout fund, the euro440 billion ($606 billion) European Financial Stability Facility. That way, countries such as the United States, which think Europe should pay for its own financial problems, wouldn’t have to put any money in. And countries like Russia and Brazil, which have expressed interest in investing in the eurozone, could.
But Merkel and IMF chief Christine Lagarde both said not a single country at the two-day meeting made a firm commitment to participate.