19 June 2012

Bloomberg: Euro crisis shifts to Spain as Merkel faces G20 pressure

G20 leaders focused their response to Europe's financial crisis on stabilising banks, as the International Monetary Fund raised its lending capacity to shield the rest of the world economy.

President Barack Obama and German Chancellor Angela Merkel, facing pressure from the US and fellow European leaders to do more to stem the crisis, met before the summit after trading accusations in recent weeks over responsibility for the turmoil.

“There is concern that the firewall available may not be adequate to deal with contagion”, Indian Prime Minister Manmohan Singh said. “The resources currently expected to be mobilised by Europe and the IMF are less than was estimated a year ago, and the crisis is actually more serious.”

G20 chiefs met as Spain’s borrowing costs soared to a euro-era record and elections in Greece failed to damp the threat of contagion. While Merkel rejects pooling euro area debt or boosting deficit spending, Obama has blamed the financial crisis in the world’s second-biggest economic bloc for slowing US employment growth.

With European Union leaders preparing to discuss the path to closer political and economic union at a summit on June 28-29, Merkel has distanced herself from proposals for a banking union. She said last week that steps such as jointly insuring deposits and joint euro area bonds can’t replace budget discipline and increased competitiveness.

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