President Barack Obama, who has blamed the crisis for a slowdown in U.S. employment growth, is due to hold talks with Merkel in the Mexican resort of Los Cabos at 1:30 p.m. today local time, a White House official said. Merkel will then join fellow euro-area leaders for more talks with Obama this evening.
“It’s not a complete beating up session, but Germany is the recipient of fairly caustic criticism from other members of the G-20,” Rob Carnell, chief international economist at ING Bank NV inLondon, said by telephone. “The pressure will be on Germany to give more ground and behind closed doors Merkel may well be more accommodative. There is ground for the euro zone to move, but just what it does depends on how much Germany digs its heels in.”
Group of 20 chiefs begin a two-day meeting in Mexico today as Spanish borrowing costs soar to a euro-era record. With elections in Greece failing to damp the threat of contagion, policy makers are discussing ways to stimulate the world economy if necessary, a Canadian official said. Merkel, who last week criticized U.S. debt levels, said June 15 that she’ll press the G-20 to hold to prudent government spending.
G-20 leaders are gathering in Los Cabos for a summit being dominated by the crisis in the 17-nation euro region that threatens to further erode the weakest global economy since the 2009 recession. Spain’s Prime Minister Mariano Rajoy is also attending, as the respite in markets after elections in Greece yesterday proved short-lived.
While the Greek election winner Antonis Samaras set about building a coalition to keep bailout aid flowing, Merkel damped speculation that the terms of Greece’s bailout might be relaxed.
“The important thing is that the new government sticks with the commitments that have been made,” Merkel told reporters today in Los Cabos. “There can be no loosening on these reform steps.”
“I expect to have good arguments” to counter pressure from G-20 countries outside Europe to boost growth and end the debt crisis, Merkel said.
Stocks and the euro extended their declines after Merkel spoke. Spanish 10-year bond yields earlier leapt above the 7 percent level that forced Greece, Ireland and Portugal to call for sovereign rescues for the first time since the euro’s creation.
Mix of Measures
G-20 officials met late into the night to discuss a mix of measures to secure the global recovery, including deficit reduction for some countries and pledges for additional stimulus by others with sounder finances, the Canadian official said on condition of anonymity because the negotiations are private. Canada was pushing for language in the communique that would call on European nations to take strong action, the official said.
“The world is very concerned about the slowing of growth that has taken place,” Obama told reporters today after meeting with Mexico’s President Felipe Calderon. “Now is a time, as we discussed, to make sure that all of us do what’s necessary to stabilize the world financial system.”
The euro dropped 0.4 percent to $1.2583 as of 6:24 p.m. in Berlin, while the Stoxx Europe 600 Index was little changed after earlier rallying 1.1 percent. The 10-year Spanish yield jumped 27 basis points to 7.08 percent.
“We see that the markets are not convinced” by the Greek vote, Italian Prime Minister Mario Monti told reporters, adding that euro-area leaders will meet with the president this evening.
At the same time, “no one thinks that the EU is the only source of the problem,” he said. The crisis “had its origins in imbalances in other countries, including the U.S.”
World Bank President Robert Zoellick, speaking in Los Cabos yesterday, said that European policy makers bungled their attempt to rescue Spain’s banks. China and Indonesia signaled growing exasperation with more than two years of European crisis-fighting that has failed to stem the threat of global contagion.
“I hope that one way or another our European colleagues will reach an agreement on rigorous methods to manage the crisis,” Indonesian President Susilo Bambang Yudhoyono, who heads Southeast Asia’s biggest economy, said in a speech in the Mexican resort. “The absence of such methods will have unsettling consequences to all of us.”
G-20 officials were still negotiating last night on the language to be used in their statement to be issued at the summit’s conclusion. The talks included discussions on using language similar to pledges made at Cannes, France, last year, the Canadian official said. At Cannes, some European countriespledged to reduce deficits while emerging markets and those with healthier finances said they’d boost demand if needed.
Merkel, Monti, Rajoy and French President Francois Hollande, the heads of the four biggest euro economies, next meet in Rome on June 22, before a full European Union summit in Brussels on June 28-29 that will discuss paths to closer political and economic union in a bid to regain market confidence. EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso are also in Los Cabos.
EU leaders will pledge “to mobilize all levers and instruments” to ensure financial stability and tackle the debt crisis, according to draft conclusions prepared for the Brussels summit.
As countries from the U.S. to China prod euro-area leaders to keep the crisis from spreading, a boost in the International Monetary Fund’s global financial backstop is moving back into focus after Merkel called for the rest of the world to do more. The G-20 will boost the $430 billion firewall the IMF announced in April, Mexican President Felipe Calderon, the meeting’s host, said on June 16.