European debt crisis tops agenda of G20

MEXICO CITY — Concerns about Europe’s sovereign debt crisis topped the agenda Saturday at the meeting in Mexico City of the Group of 20 finance leaders, with some praising Greece’s offer to repay bondholders at a steep discount, while others cautioning Greece will get no more money if it doesn’t make structural reforms.

MEXICO CITY — Concerns about Europe’s sovereign debt crisis topped the agenda Saturday at the meeting in Mexico City of the Group of 20 finance leaders, with some praising Greece’s offer to repay bondholders at a steep discount, while others cautioning Greece will get no more money if it doesn’t make structural reforms.

Federal Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney will represent Canada at the conference.

The debate over whether the countries of the European Union have contributed enough to emergency financial stabilization funds to calm the sovereign debt fears continued. And the question of a further boost to the effort from the International Monetary Fund is likely to be discussed, but not solved, at the meeting.

Angel Gurria, the head of the Organization for Economic Co-operation and Development, set the bar for the debate high in a speech Saturday, saying an adequate financial stabilization fund would imply about $1.5 trillion, about three time the amount currently committed by European countries, with about half a trillion coming from the IMF.

“We still have to build the mother of all firewalls,” Gurria said. “The thicker the firewall is, the less likely we’ll have to use it.”

German central bank president Jens Weidmann noted that Euro-area political leaders will meet in March to decide whether to further increase the current 500-billion-euro financial stabilization effort, and while he didn’t rule out increased funding, he said money alone won’t do it.

“Higher walls of money can buy time, but that time must be used to tackle the roots of the crisis,” Weidmann told a seminar prior to the ministers meeting. “Ultimately, Greece cannot be forced to comply with the program,” he said of the indebted country’s commitment to make fiscal, wage and other reforms in exchange for the European bailout.

“But it should be clear that no further disbursements will be warranted if Greece fails to keep its side of the bargain,” Weidmann said.

Gurria said the current stabilization fund effort came at least a year late, and noted wryly that “you can’t accuse the Europeans of being too fast.”

In an interview with cable channel CNBC on Friday, U.S. Treasury Secretary Timothy Geithner said Europe must do more.

Asked how big the stabilization firewall should be, Geithner said, “Bigger than they have today.”

Mexican Treasury Secretary Jose Antonio Meade appeared ready to wait on discussing further IMF funding, noting “it’s too soon yet in the process to start discussing specifics on methods and amounts.”

Mexican central bank Governor Agustin Carstens said Friday that the “IMF’s lending capacity is an issue that will be discussed” at Saturday’s meeting among finance ministers and central bankers.

But one Canadian finance official, who was not authorized to speak on the record, said that “on the issues of IMF funding, I don’t think we are near a consensus.”

Greeks have weathered tough austerity measures, including slashing pensions and benefits, and reducing the minimum wage by around 23 per cent.

On Friday, investors in Greek government bonds were also asked to bear a bit of the pain. The government formally presented an offer under which private bondholders would exchange their bonds with new ones with a 53.5 per cent lower face value, longer maturities of up to 30 years and lower interest rates — an annual 2 per cent by 2015, 3 per cent to 2021 and 4.3 per cent after that.

The deal would help Greece knock about 107 billion euros ($142 billion) off its debt.

Charles Dallara, a senior banker who led what he called “laborious, lengthy, difficult negotiations” on the bond-swap with Greece, praised the deal, saying investors would get 15 per cent cash up front for taking the offer.

He said “there are extremely important term and conditions,” some of which might allow investors to get slightly better payouts if Greece’s economy improves.

“We are quite optimistic that once investors study carefully, on their own individual decisions, according to their own process, there will be a high takeup in a voluntary fashion,” Dallara said.

But he noted with concern that the Greek government had drawn up plans for collective action clauses, which would allow the settlement to be imposed on all bondholders if a majority of them agree to the offer.

“The Greek government has decided to pass legislation introducing collective action clauses,” Dallara told the conference. “But in my discussions it has been made clear that no decision has been made whether or not they will activate those collective action clauses. Should they decide to activate, of course it does raise concerns.”

The conference was full of gloom, with central bankers and politicians warning that austerity and structure reform would continue, and private bankers complaining that an increased wave of regulations and capitalization requirements following the 2008 financial crisis would make it hard for them to supply the credit needed for economic recovery.

Gurria, the OECD head, also complained that amid the economic downturn, “protectionism is rearing its ugly head. … We have to fight it like the plague.”

There was one sort of bright spot, however; emerging economies, which were forced to take often tough advice from the developed nations during the crises of the 1980s and 1990s, have weathered the current sovereign shock fairly well.

With lower levels of debt, and often more responsible fiscal policies, they are now in a position to turn the tables and offer advice to Europe, as Mexico’s Carstens did Friday.

He said Latin America’s experience showed social safety networks should be preserved, but that structural reforms, like budget cuts — “strong, painful but necessary actions” — should be carried out without delay.

“The unavoidable remedial measures in the short term can deepen the impact of the crisis on economic activity, unemployment and poverty, but these costs tend to be much higher if the adjustments measures are postponed or adopted only partially,” said Carstens.

— With files from The Canadian Press.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A health-care worker prepares a dose of the Pfizer-BioNTech COVID-19 vaccine at a clinic in Toronto on Thursday, January 7, 2021. THE CANADIAN PRESS/Nathan Denette
Alberta vaccine rollout expanding to front-line health-care workers

More than 240,000 eligible health-care workers can begin booking vaccine appointments starting… Continue reading

File photo
The Red Deer Rebels will have three new assistant coaches when the WHL regular season starts on Friday. Brad Flynn (left), will be on the bench alongside fellow assistant Ryan Colville (right) head coach Brent Sutter (middle). (Photo by BYRON HACKETT/Advocate Staff)
Sutter steps down as Red Deer Rebels head coach

Red Deer Rebels Owner, GM and head coach Brent Sutter has stepped… Continue reading

Premier Jason Kenney announced $200 million more money that will benefit seniors living in continuing care on Wednesday. (photography by Chris Schwarz/Government of Alberta)
Alberta’s in-school rapid screening test program expanding

Alberta’s in-school rapid screening test program will expand to as many as… Continue reading

Parents and students learned Tuesday what the coming school year will look like. It's pretty much back to business as usual, said Education Minister Adriana LaGrange. School precautions include frequent cleaning, keeping students in the same groups where possible, planning the school day to allow for physical distancing and staying home when sick. (photography by Chris Schwarz/Government of Alberta)
Alberta’s largest school board says no to United Conservative draft school curriculum

CALGARY — Alberta’s largest school board says it will not use the… Continue reading

Red Deer-South MLA Jason Stephan is among those who have signed an open letter criticizing the government’s return to stricter health measures. (Advocate file photo).
Updated: Kenney tells UCP caucus COVID-19 dissent OK, breaking health rules means expulsion

15 MLAs released letter on Wednesday critical of new health restrictions

Team Canada skip Brendan Bottcher makes a shot against Italy at the Men's World Curling Championships in Calgary, Alta., Tuesday, April 6, 2021.THE CANADIAN PRESS/Jeff McIntosh
Men’s world curling championship in Calgary in COVID limbo

CALGARY — The men’s world curling championship in Calgary remained suspended Saturday… Continue reading

Pipes intended for construction of the Keystone XL pipeline are shown in Gascoyne, N.D. on Wednesday April 22, 2015. THE CANADIAN PRESS/Alex Panetta
Non-profit Quebec law centre to aid environmental group targeted by Alberta oil firm

QUEBEC — The Quebec Environmental Law Centre is coming to the aid… Continue reading

Conservative leader Erin O'Toole holds a press conference on Parliament Hill in Ottawa on Tuesday, April 6, 2020. Top Tory leaders of past and present will speak with supporters today about what a conservative economic recovery from COVID-19 could look like. THE CANADIAN PRESS/Sean Kilpatrick
Conservatives cite empathy, relationships as ways to help expand their movement

OTTAWA — Conservatives should show empathy with Black residents who say they’ve… Continue reading

NDP Leader John Horgan celebrates his election win in the British Columbia provincial election in downtown Vancouver, B.C., Saturday, Oct. 24, 2020. New Democrats are reconvening for the second day of a three-day policy convention as they look to push past the glitches of the virtual event's opening sessions and rally around keynote speaker John Horgan. THE CANADIAN PRESS/Jonathan Hayward
New Democrats reconvene as hiccups, frustrations plague national policy convention

OTTAWA — New Democrats reconvened Saturday for the second day of a… Continue reading

Owner of 4 Point Taekwondo Kevin Mejia holds a board as organizer and martial artist Kevin Olsen breaks it in Edmonton on Friday, April 9, 2021. One hundred martial artists from around the world, will be breaking a board for an event called "Break for a Breakthrough." The idea is for martial artists to unite and re-engage with the arts because they may have drifted away or lost enthusiasm as a result of the pandemic. THE CANADIAN PRESS/Jason Franson
Break for a Breakthrough: Canadian hosts international martial arts demonstration

EDMONTON — Whether he’s breaking a wooden board, a clay tile, cement… Continue reading

Queen Elizabeth and Prince Philip, Duke of Ediburgh, left, look on as Manitoba Beaver peaks out of his box at a July 14, 1970 ceremony in which Hudson's Bay Company observed an old tradition. The death of Prince Philip has reminded a small French village in Manitoban about how a royal visit half a century ago made the community the centre of frog racing in Canada. THE CANADIAN PRESS
Prince Philip’s frog-jumping legacy in a Manitoba French community

WINNIPEG — The death of Prince Philip, Duke of Edinburgh, has reminded… Continue reading

The Yukon provincial flag flies on a flag pole in Ottawa, Monday July 6, 2020. Yukon residents will head to the polls on Monday for Canada's fourth election held during the COVID-19 pandemic. THE CANADIAN PRESS/Adrian Wyld
Yukon residents set to vote in fourth election held in Canada during pandemic

WHITEHORSE — Yukon residents will head to the polls on Monday for… Continue reading

Prime Minister Justin Trudeau holds a press conference in Ottawa Tuesday, March 9, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Liberals set to debate universal basic income, pharmacare, OAS hike

OTTAWA — Grassroots Liberals have taken up Prime Minister Justin Trudeau’s call… Continue reading

Most Read