Italy and Spain bailouts will be the ESEFs biggest challenge, over Greece, Portugal or Ireland.
Intent to resolve the crisis, officials attending the G20 summit in Paris on October 23 will have the euro zone crisis as their highlight. It will include Spain’s credit rating downgrade from S&P due to high unemployment – a larger economy threat Greece may face. South Africa Finance Minister Pravin Gordhan said International Monetary Fund’s and euro zone’s EFSF rescue fund are inadequate should the contagion spread further.
Possible default fears have driven market confidence low since late July. Global stocks dipped 17% from 2011’s May high. The meeting, said a delegate, is an important staging point prior to November 3/4 G20 leaders summit in Cannes and a valuable opportunity to put pressure on the euro zone. Europe’s slow action has the world resisting while US and China deals with the yuan undervalue issue. Franco-German crisis plan is apt to ask banks to accept Greek debt bigger losses than 21% percent planned for Athens’s bailout plan in July. It is also expected to set a recapitalizing banks system to pull euro zone’s European Financial Stability Facility.
EFSF may cope with Greece, Portugal and Ireland bailouts, Italy or Spain will prove to be a bigger challenge. The best way could be EFSF turning into a bank to take advantage of European Central Bank resources but Germany and the ECB are against the idea. Bolstering the IMF’s capital to fight the crisis is favored by most BRICS economies. The US insists that the IMF has enough. The IMF is set to present a support plan, a short-term credit line availability to able countries affected by liquidity crises which may aid euro zone countries in crisis.
The summit may give regulators the go signal for new rules for bigger banks that are unlikely to fail including capital surcharges. However, bigger goals’ progress like placing a global imbalance parameter yardstick and speculative capital flows which may not happen during the Cannes summit in November. France is hopeful for 2-3 measures for imbalanced countries. They expect the measures to have an impact on the real economy.
A source said China plans to help Paris boost its consumption in a 5-year plan through households, companies and infrastructure. The G20 countries make 85% of global production. In April, a G20 meeting reviewed China, France, Britain, Germany, Japan and India to get China to discuss the yuan and the country’s cooperation in order for the process to succeed. The euro zone crisis, however, doused French President Nicolas Sarkovy’s hopes to use his G20 presidency to start a global financial system and U.S. dollar reliance reconsideration.
