PREVIEW: G20 looking to reignite world economy at Cannes summit

By Alvise Armellini and Andrew McCathie Oct 31, 2011, 15:23 GMT

Brussels/Berlin - This week's Group of 20 summit is shaping up to be a critical test for the leaders of the world's major economies as they battle to lay aside deep differences over key global economic issues and face up to the threat of recession.

The two-day summit, which opens in the French Riviera resort of Cannes on Thursday, 'has unfortunately acquired a sense of drama similar to that of the first two G20 meetings' in 2008 and 2009, when the world was reeling from the global financial meltdown, said Kemal Dervis from Brookings, a US think tank.

Talks aimed at preparing the ground for the two-day summit have exposed considerable tensions, both among major industrialized countries and in their relationship with leading emerging economies.

There have already been a series of heated exchanges between the United States and Europe Union over their debt problems.

Western officials also say Beijing has in preparatory meetings hit back at pressure from both the Europeans and the Americans for China to pursue a particular course of action, saying the EU and Washington were not doing enough themselves to address their own deep-seated debt problems.

The US claims that China's export supremacy is driven by protectionism and a deliberate undervaluation of its currency, the renminbi. Consequently, it wants the G20 to push Beijing to take corrective action.

Faced with intense pressure from its G20 partners to deliver a resolution to the eurozone's debt crisis, European leaders unveiled a plan on Thursday aimed at containing the two-year financial upheaval.

This included calling on banks to accept a 50-per-cent loss on loans to Greece and beefing up the eurozone's bailout fund to 1 trillion euros (1.4 trillion dollars).

But European leaders will travel to Cannes this week knowing that details of their euro debt deal still have to be hammered out.

'This is no comprehensive deal ... the numbers are too small, the timelines too long and details too thin on the ground,' says Sony Kapoor from the financial think tank Re-Define.

In the meantime, a key part of Europe's agenda in Cannes will be to press for stepped-up regulation of both financial markets and the banking sector.

Europe once again plans to press the G20 for the introduction of a global financial transaction tax to head off market speculation.

Funds raised by the tax could partly fund climate change and poverty reduction programmes, Europe argues. But German officials have already admitted that stiff opposition to the tax, particularly from Britain, the US, China and India, will mean it stands little chance of being accepted in Cannes.

In mid-October, G20 finance ministers discussed increasing the bailout capacities of the International Monetary Fund (IMF) to help eurozone efforts. China and Brazil expressed their readiness to contribute, but the US and Germany shot down the idea.

A senior EU official also insisted that outside financing of the eurozone rescue fund - the European Financial Stability Facility (EFSF) - by nations such as China would not be discussed at the G20.

European Commission President Jose Manuel Barroso and European Union President Herman Van Rompuy do not 'have a mandate to go to Cannes and asks others 'do you have any money for the EFSF?',' a Brussels official quipped recently.

He predicted that the G20 spotlight would also turn on the US and China.

'We are not the only ones who have problems,' he protested. The US 'has to rebalance its public finances in a credible way,' while the Chinese should 'buy more from abroad and sell less abroad.'

Simon Tilford, an analyst with the London-based Centre for European Reform think tank, wrote this month that as the US and several European nations slash consumption to cut their deficits, surplus countries like China should make up the difference.

On Friday, the official Xinhua news agency reported that the country's trade surplus this year was due to reach a record 200 billion dollars, about 3 per cent of its gross domestic product.

G20 leaders are also expected to approve a list of 29 'too big to fail' global banks, which will be subject to additional capital requirements.

The meeting is also expected to appoint a new head of the Financial Stability Board - the panel which has been drawing up financial regulation reforms on behalf of the G20.

The board's current chief, Italian central bank governor Mario Draghi, is to give up the post after he becomes European Central Bank President on Tuesday.

The two-day Cannes agenda also includes food security - with the expected approval of a global early warning system monitoring prices, trade, output of wheat, rice, soybean and corn commodities - and global poverty reduction efforts.

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